TOWARD SUPPLIERPORTFOLIO MANAGEMENT THEORY: ANEMPIRICALSTUDYOF BUYERSUPPLIERRELATIONSHIPSIN THEU.S.

AUTOMOTIVE COMPONENTSINDUSTRY

by

ScottChristopherEllis January 26,2007

Adissertationsubmittedtothe FacultyoftheGraduateSchoolof TheStateUniversityofNewYorkatBuffalo Inpartialfulfillmentoftherequirements Forthedegreeof

DoctorofPhilosophy

DepartmentofOperationsManagementandStrategy

UMI Number: 3261955

Copyright 2007 by Ellis, Scott Christopher All rights reserved.

UMI Microform 3261955 Copyright 2007 by ProQuest Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code.

ProQuest Information and Learning Company 300 North Zeeb Road P.O. Box 1346 Ann Arbor, MI 48106-1346

Copyrightby ScottChristopherEllis 2007

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TomythreegirlsAmie,Madison,andCaitlinn. Yourloveismygreatesttreasure.

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ACKNOWLEDGMENTS
Throughoutmydoctoralprogram,Ihavebenefittedfromtheguidanceandsupportoffaculty, friends,andfamily.Iwouldliketoextendmysincerethankstothosewhohavehelpedme developboth academicallyandpersonallythroughoutmydoctoralstudies. Iwould liketoacknowledgethethoughtfulguidanceand mentorshipthatDr.Nallan Suresh has provided me. In preparation for candidacy, Dr. Suresh provided academic direction and personal insights that facilitated my growth and maturation. As chair of my dissertation committee, Dr. Suresh provided tremendous support that facilitated the timely completion of this dissertation. Additionally, I would like to acknowledge my dissertation committeemembersDr.RajivKishoreandDr.TonyTongfortheircomments,insights, and input. Clearly, this dissertation and my personal development have benefitted greatly fromourinteractionthankyou! I would like to thank the faculty, staff, and doctoral students of the School of Management.Inparticular,IwouldliketoacknowledgeDr.LarrySanders,Dr.RajSharman, Dr.NatalieSimpson,Dr.JohnStephan(Florida AtlanticUniversity),andDr.Charles Wang fortheirsupportiveroleinmyscholarlydevelopmentJudyBain,ValerieLimpert,andTrish Wisner for their administrative support and Eugene Colucci for his technical guidance. Throughoutthedoctoralprogram,Ienjoyed my interactionsandcollaborationswith several colleagues,especiallyEbeRanderee,ParagLaddha,JimHamister,andMikeBraunscheidel.I amgratefultohavecompletedmydoctoralcandidacywithsuchamotivated,knowledgeable, andcollegialgroup. Additionally,IoweadebtofgratitudetoDr.JosephAlutto(TheOhio StateUniversity)thefinancialsupportthatIreceivedthroughhisnamedfellowshipprovided theopportunityformetoengageindoctoralstudies.

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This dissertation would not have been possible without the help and support of an unnamed consultancy, the automotive components manufacturer that serves as the focus of this study, and several automotive suppliers. Managers and executives from several firms offered their time and personal insights in supportof this research project. The knowledge gained from purchasing, marketing, and engineering managers in these firms contributed significantly to the conceptualization and successful completion of this research study. As such,Iamverygratefulfortheinvolvementandsupportofmanagersandexecutiveswithin thesefirms. Finally,Iwouldliketoexpressmysinceregratitudetomyfriendsandfamilyfortheir unending support and encouragement. In particular, I would like to reiterate my deepest thanks to my wife, Amie Lynne, and daughters, Madison Leigh and Caitlinn Rose. I will foreverbegratefulforyoursacrifice,love,andsupport.Iamsovery thankfulthatIsharemy lifewith threewonderful,special girls!

TABLEOFCONTENTS
ACKNOWLEDGMENTS.................................................................................................... iv TABLEOFCONTENTS..................................................................................................... vi LISTOFTABLES............................................................................................................... ix LISTOFFIGURES ........................................................................................................... xiii ABSTRACT ...................................................................................................................... xiv 1. INTRODUCTION .......................................................................................................... 1 1.1 ConceptualResearchModel ................................................................................... 7 1.2 MajorObjectivesofThisStudy .............................................................................. 9 1.3 OrganizationoftheDissertation ........................................................................... 11 2. LITERATUREREVIEW.............................................................................................. 13 2.1 BuyerSupplierRelationshipTheory..................................................................... 14 2.1.1 ExchangeTheory ...................................................................................... 14 2.1.2 RelationalCloseness................................................................................. 17 2.1.3 SupplierPortfolioManagementTheory .................................................... 27 2.2 SupplyManagement ............................................................................................. 40 2.2.1 SupplierSelection ..................................................................................... 40 2.2.2 Negotiation ............................................................................................... 42 2.2.3 CostManagement ..................................................................................... 46 2.2.4 SupplierDevelopment............................................................................... 51 2.2.5 InterfirmCommunication ........................................................................ 58 2.3 InterfirmBusinessProcessIntegration................................................................. 59 2.3.1 SupplierSuggestionParticipation............................................................. 59 2.3.2 LogisticsIntegration ................................................................................. 61 2.3.3 SupplierNewProductInvolvement ........................................................... 69 2.4 OrganizationalCompetence.................................................................................. 76 2.4.1 BuyerCompetence .................................................................................... 76 2.4.2 SupplierCompetence ................................................................................ 78 3. MODEL DEVELOPMENT .......................................................................................... 80 3.1 BuyerSupplierRelationshipClosenessFactorModel........................................... 81 3.1.1 Trust ......................................................................................................... 81 3.1.2 Commitment............................................................................................. 83 3.1.3 SharedBenefit .......................................................................................... 84 3.1.4 Flexibility ................................................................................................. 84 3.1.5 InformationSharing.................................................................................. 85 3.1.6 Solidarity .................................................................................................. 86 3.1.7 MultiDimensionalModelofBuyerSupplierRelationshipCloseness ........ 87

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3.2 BuyerSupplierRelationshipClosenessCausalModel .......................................... 89 3.2.1 IntegrativeActivities ................................................................................. 92 3.2.2 DistributiveActivities................................................................................ 97 3.2.3 StrategicImportanceofRelationship ...................................................... 100 3.3 CharacterizingtheSupplierRelationshipPortfolio.............................................. 104 3.4 AnalysisofSupplyManagementandOperationalBenefitsAcrossSupplier RelationshipClusters.......................................................................................... 110 3.4.1 SupplyManagementPractices ................................................................ 110 3.4.2 OperationalBenefits ............................................................................... 116 4. RESEARCHMETHODOLOGY................................................................................ 123 4.1 InstrumentDevelopment..................................................................................... 123 4.2 ConstructMeasures ............................................................................................ 124 4.2.1 RelationshipClosenessMeasures........................................................... 125 4.2.2 RelationshipClosenessAntecedentMeasures ......................................... 126 4.2.3 SupplyManagementMeasures................................................................ 127 4.2.4 OperationalBenefitsMeasures ............................................................... 129 4.3 SampleFrame..................................................................................................... 131 4.4 SurveyAdministration........................................................................................ 132 4.5 StatisticalAnalysis ............................................................................................. 133 4.5.1 StructuralEquationModeling................................................................. 133 4.5.2 ClusterAnalysis...................................................................................... 138 5. MEASUREMENTPROCEDURESANDRESULTS ................................................. 141 5.1 ExaminationofData........................................................................................... 143 5.1.1 ResponseRate......................................................................................... 143 5.1.2 NonresponseBias .................................................................................. 144 5.1.3 UnivariateNormality .............................................................................. 147 5.2 SampleDemographics ........................................................................................ 149 5.3 BuyerSupplierRelationshipClosenessConstructValidation .......................... 154 5.3.1 Unidimensionality................................................................................... 155 5.3.2 Reliability ............................................................................................... 160 5.3.3 ConvergentandDiscriminantValidity .................................................... 163 5.3.4 SecondOrderConstruct ......................................................................... 178 5.3.5 FirstOrderConstruct............................................................................. 183 5.4 BuyerSupplierRelationshipGoodnessConstructValidity .............................. 185 5.4.1 Unidimensionality................................................................................... 185 5.4.2 Reliability ............................................................................................... 186 5.4.3 ConvergentandDiscriminantValidity .................................................... 187 5.5 AntecedentstoRelationshipClosenessConstructValidity............................... 190 5.5.1 Unidimensionality................................................................................... 190 5.5.1 Reliability ............................................................................................... 193 5.5.3 ConvergentandDiscriminantValidity .................................................... 194

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5.6 SupplyManagementPracticesConstructValidity............................................ 208 5.6.1 Unidimensionality................................................................................... 208 5.6.2 Reliability ............................................................................................... 210 5.6.3 ConvergentandDiscriminantValidity .................................................... 212 5.7 OperationalBenefitsConstructValidity........................................................... 215 5.7.1 Unidimensionality................................................................................... 215 5.7.2 Reliability ............................................................................................... 217 5.7.3 ConvergentandDiscriminantValidity .................................................... 219 6. TESTSOFHYPOTHESES......................................................................................... 223 6.1 BuyerSupplierRelationshipClosenessFactorModel......................................... 223 6.2 BuyerSupplierRelationshipClosenessCausalModel ........................................ 227 6.3 CharacterizingtheRelationshipPortfolio............................................................ 234 6.4 AnalysisofSupplyManagementPracticesAcrossSupplierRelationship Clusters .............................................................................................................. 255 6.5 AnalysisofOperationalBenefitsAcrossSupplierRelationshipClusters............. 259 7. DISCUSSIONOFRESULTS ..................................................................................... 264 7.1 BuyerSupplierRelationshipClosenessSecondOrderFactorModel .................. 265 7.2 CausalModelofBuyerSupplierRelationshipCloseness.................................... 268 7.3 CharacterizingtheSupplierRelationshipPortfolio.............................................. 276 8. CONTRIBUTIONS,LIMITATIONS&FUTURERESEARCH................................. 285 8.1 Contributions...................................................................................................... 285 8.2 Limitations ......................................................................................................... 291 8.3 FutureResearch.................................................................................................. 294 APPENDIXA .................................................................................................................. 296 APPENDIXB................................................................................................................... 300 APPENDIXC................................................................................................................... 303 REFERENCES ................................................................................................................. 306

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LISTOFTABLES
Table2.1 Table2.2 Table2.3 Table2.4 Table2.5 Table5.1 Table5.2 Table5.3 Table5.4 Table5.5 Table5.6 Table5.7 Table5.8 Table5.9 Table5.10 Table5.11 Table5.12 Table5.13 Table5.14 Table5.15 Table5.16 Table5.17 Table5.18 Table5.19 Table5.20 Table5.21 Table5.22 Table5.23 Table5.24 Table5.25 Table5.26 Table5.27 Table5.28 Table5.29 Table5.30 Table5.31 Table5.32 Table5.33 Table5.34 Definitionsofclosebuyersupplierrelationships...... 19 Keyattributesofclosebuyersupplierrelationships......20 Suppliersegmentationcriteria........... 31 Factorsaffectingpurchaseimportance.. 34 Factorsaffectingsupplycomplexity ......34 Meancomparisonsofearlyversuslateresponders..145 Meancomparisonsofnonparticipantsversusparticipants.....147 Reportedtotalannualsales...150 Reportedannualautomotivesales........150 Reportedannualsalestotheautomotivecomponentsmanufacturer...151 ReportedR&Dexpenseasapercentofannualautomotivesales........152 Reportedpercentofannualautomotivesalestoautomotivecomponents manufacturer 152 Reportedlengthofsupplyrelationship........153 Supplierheadquarterslocationsbyregion ...154 Commoditygroups...154 Standardizedpathloadingsforinformationsharing........157 Standardizedpathloadingsfortrust.........158 Standardizedpathloadingsforsolidarity .........158 Standardizedpathloadingsforcommitment... 159 Factor loadingsforsharedbenefit160 Reliabilitystatisticsforinformationsharing........161 Reliabilitystatisticsfortrust........ 161 Reliabilitystatisticsforsolidarity ........ 162 Reliabilitystatisticsforcommitment... 162 Reliabilitystatisticsforsharedbenefit.162 Modificationindicesforinformationsharingandtrust... 166 Modificationindicesforinformationsharingandsolidarity ... 167 Modificationindicesforinformationsharingandcommitment.. 168 Modificationindicesfortrustandsolidarity ........169 Modificationindicesfortrustandcommitment...170 Modificationindicesforsolidarityandcommitment...171 Modificationindicesforfullmeasurementmodel .......175 Firstorderfactor correlationsforfullmeasurementmodel .....176 Firstorderfactordiscriminantvalidityanalysis..176 Firstorderfactorcorrelationsforrevisedfullmeasurementmodel ........ 177 Descriptivestatisticsforitemswithinthefullmeasurementmodel ........177 Relationshipclosenesssecondorderfactormodelpathcoefficients...182 Measuresofmodelfit:alternatefactorstructures ........182 Standardizedloadingsforrelationshipcloseness.........184

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Table5.35 Table5.36 Table5.37 Table5.38 Table5.39 Table5.40 Table5.41 Table5.42 Table5.43 Table5.44 Table5.45 Table5.46 Table5.47 Table5.48 Table5.49 Table5.50 Table5.51 Table5.52 Table5.53 Table5.54 Table5.55 Table5.56 Table5.57 Table5.58 Table5.59 Table5.60 Table5.61 Table5.62 Table5.63 Table5.64 Table5.65 Table5.66 Table5.67 Table5.68 Table5.69 Table6.1 Table6.2 Table6.3 Table6.4 Table6.5

Reliabilitystatisticsforrelationshipcloseness........ 185 Standardizedloadingsforrelationshipgoodness.....186 Reliabilitystatisticsforrelationshipgoodness.........187 Modificationindicesforrelationshipclosenessandrelationshipgoodness.189 Correlationstatisticsforrelationshipclosenessandrelationshipgoodness.189 Discriminantvalidityanalysisforrelationshipclosenessandrelationship goodness...190 Standardizedloadingsfordistributiveactivity ........ 192 Standardizedloadingsforintegrativeactivity ..... 193 Reliabilitystatisticsfordistributiveactivity ........194 Reliabilitystatisticsforintegrativeactivity ..... 194 Modificationindicesfordistributiveandintegrativeactivities... 197 Modificationindicesfordistributiveactivityandrelationshipcloseness199 Modificationindicesforrelationshipclosenessandintegrativeactivity .....201 Modificationindicesforfullmeasurementmodel ...204 Firstorderfactorcorrelationsforfullmeasurementmodel .........205 Firstorderfactordiscriminantvalidityanalysis..205 Descriptivestatisticsforitemswithinthefullmeasurementmodel ........206 Factorloadingsforcomprehensivenessofsupplierevaluation ... 209 Factorloadingsforcompetitivepressure.....209 Factorloadingsfordirectinvolvement........210 Reliabilitystatisticsforcomprehensivenessofsupplierevaluation .... 211 Reliabilitystatisticsforcompetitivepressure..211 Reliabilitystatisticsfordirectinvolvement..... 212 Supplymanagementpracticesrotatedcomponentmatrix ........ 214 Supplymanagementpracticesinterfactorcorrelations........214 Factorloadingsforbarrierstotechnologysharinglackofinterest...216 Factorloadingsforbarrierstotechnologysharingfearofinformation misappropriation .. 216 Factorloadingsforcostimprovementopportunities... 216 Factorloadingsforinterfirmqualitymanagement..... 217 Reliabilitystatisticsforbarrierstotechnologysharinglackofinterest....218 Reliabilitystatisticsforbarrierstotechnologysharingfearofinformation misappropriation .. 218 Reliabilitystatisticsforcostimprovementopportunities........ 219 Reliabilitystatisticsforinterfirmqualitymanagement.. 219 Operationalbenefitsrotatedcomponentsmatrix .. 221 Operationalbenefitsinterfactorcorrelations... 222 Relationshipclosenesscausalmodel fitstatistics.....231 Relationshipclosenesscausalmodel structural pathcoefficients.....231 Relationshipclosenesscausalmodel explainedvariance..... 232 Relationshipclosenesscausalmodel indicator pathcoefficients......232 Resultsofhypothesesthreethroughsix ...234

Table6.6 Table6.7 Table6.8 Table6.9 Table6.10 Table6.11 Table6.12 Table6.13 Table6.14 Table6.15 Table6.16 Table6.17 Table7.1 Table7.2 Table7.3 Table7.4 Table8.1 TableA.1 TableA.2 TableA.3 TableA.4 TableA.5 TableA.6 TableA.7 TableA.8 TableA.9 TableB.1 TableB.2 TableB.3 TableB.4 TableC.1

Correlations(lowertriangle)andstandarderrors(uppertriangle)for classificationcriteria 235 Agglomerationcoefficients..239 Crossvalidationoffiveclustersolution splitsampleclassification analysis242 Crossvalidationoffiveclustersolution splitsampledescriptiveanalysis.. 243 Meansofclassificationvariablesforfiveclustersolution ...245 Testsofmeandifferencesofsupplymanagementpracticesforfivecluster solution .........247 Crossvalidationofthreeclustersolution splitsampleclassification analysis.249 Crossvalidationofthreeclustersolution splitsampledescriptive analysis.250 Meansofclassificationvariablesforthreeclustersolution .........251 Testsofmeandifferencesofsupplymanagementpracticesforthreecluster solution .........253 Demographicsforthreeclustersolution ..254 Testsofmeandifferencesofoperationalbenefitsforthreeclustersolution ...263 Respecifiedrelationshipclosenesscausalmodel modelfitstatistics...271 Respecifiedrelationshipclosenesscausalmodel structuralpath coefficients.......................................................................................................271 Respecifiedrelationshipclosenesscausalmodel explainedvariance..... 272 Respecifiedrelationshipclosenesscausalmodel indicatorpath coefficients...272 Organizationspecificsamplingapproaches 293 Factorloadingsforinformationsharing...........................296 Factorloadingsfortrust........................... 296 Factor loadingsforsolidarity........................... 296 Factorloadingsforcommitment......................297 Factorloadingsforsharedbenefit297 Factorloadingsforrelationshipcloseness... 297 Factorloadingsforrelationshipgoodness... 298 Factorloadingsfordistributiveactivity298 Factorloadingsforintegrativeactivity....299 Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct fitstatistics. 300 Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct structuralpathcoefficientsforrevisedmodel ...300 Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct explainedvarianceforrevisedmodel... 301 Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct indicatorpathcoefficientsforrevisedmodel... 301 Respecifiedrelationshipclosenesscausalmodelwithreviseddistributive activityconstructmodel fitstatistics 303

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TableC.2 TableC.3 TableC.4

Respecified relationship closeness causal model with revised distributive activityconstructstructuralpathcoefficients... 303 Respecifiedrelationshipclosenesscausalmodelwithreviseddistributive activityconstructexplainedvariance304 Respecified relationship closeness causal model with revised distributive activityconstructindicatorpathcoefficients 304

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LISTOFFIGURES
Figure1.1 Figure2.1 Figure3.1 Figure3.2 Figure5.1 Figure5.2 Figure5.3 Figure5.4 Figure5.5 Figure5.6 Figure5.7 Figure5.8 Figure5.9 Figure5.10 Figure5.11 Figure5.12 Figure5.13 Figure5.14 Figure5.15 Figure5.16 Figure5.17 Figure5.18 Figure5.19 Figure5.20 Figure5.21 Figure5.22 Figure6.1 Figure6.2 Figure6.3 Figure7.1 FigureB.1 FigureC.1 Conceptualmodelofrelationshipmanagement............9 Kraljicspurchasingsophisticationmatrix . 32 Multidimensionalmodelofbuyersupplierrelationshipcloseness... 89 Causalmodelofbuyersupplierrelationshipcloseness.. 92 Measurementmodelforinformationsharing157 Measurementmodelfortrust........ 157 Measurementmodelforsolidarity .,.. 158 Measurementmodelforcommitment...159 Measurementmodelforsharedbenefit.........159 Measurementmodelforinformationsharingandtrust.....165 Measurementmodelforinformationsharingandsolidarity .....166 Measurementmodelforinformationsharingandcommitment........167 Measurementmodelfortrustandsolidarity ......... 168 Measurementmodelfortrustandcommitment........ 169 Measurementmodelforsolidarityandcommitment........ 170 Fullmeasurementmodelforfirstorderfactors........ 174 Relationshipclosenesssecondorderfactormodel ... 181 Measurementmodelforrelationshipcloseness........ 184 Measurementmodelforrelationshipgoodness........ 186 Measurementmodelforrelationshipclosenessandrelationshipgoodness..188 Measurementmodelfordistributiveactivity 192 Measurementmodelforintegrativeactivity . 192 Measurementmodelfordistributiveandintegrativeactivities.196 Measurementmodelfordistributiveactivityandrelationshipcloseness. 198 Measurementmodelforrelationshipclosenessandintegrativeactivity ...200 Fullmeasurementmodelforalllatentconstructs . 203 Relationshipclosenesspathdiagram ........ 233 Stepwiseapproachtoclusteranalysis......237 Plotofchangeinagglomerationcoefficientversusnumberofclusters... 239 Respecifiedcausalmodelofrelationshipcloseness.... 273 Relationshipclosenesspathdiagramwithreviseddistributiveactivity construct302 Respecified relationship closeness path diagram with revised distributive activityconstruct...305

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ABSTRACT
Thisdissertationreportstheresultsofanempiricalresearchstudythatseekstodevelopnew insightsintosupplierportfoliomanagement.Positionedasalogicalextensionoftransaction cost economic and relational contracting theory, supplier portfolio management theory advocatesthedifferentialmanagementofgroupsorsegmentsofsupplyrelationshipsbasedon the importance ofeachsupply segment. In accordance with supplier portfolio management theory, more important supply relationships may warrant closer, partnerstyle supply relationships, which may be likened to hybrid forms of governance espoused by relational contracting theory. Conversely, traditional, armslength relationships, as described within transaction cost economics literature, may be wellsuited for suppliers of lesser importance. Central to the notion of supplier portfolio management theory is that buying firms should allocatelimitedinternalresourcestothosesetsofsupplierrelationshipsthatgenerategreatest valueforthebuyingfirm. Thisresearchaddstothedevelopingbodyofsupplierportfoliomanagementliterature in several ways. First, this research aims to theoretically ground supplier portfolio managementtheory withinthelogicalframeworksoftransactioncosteconomicandrelational contracting theories. Previous research in the area of supplier portfolio management is primarilypractitionerdrivenandlargelymaintainsaphenomenologicalratherthantheoretical orientation.Second,thisstudyprovidesaninitiallargescaleempiricaltestoftheassertions ofsupplier portfolio management theoryby examining the buyersupplier relationships that exist between a firsttier global automotive components manufacturer and its global direct materialssupplybase.Inparticular,thisresearchseekstoempiricallyvalidatebuyersupplier closeness as a secondorder latent construct, examine the extent to which measures of

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relationshipclosenessmaybeusedtoidentifyclustersorsetsofsupplierrelationshipswithin thefocal buyerssupply base,assessthedifferences inrelationshipclosenessacrosssetsof supplier relationships, investigate the factors that influence supplier relationship closeness, andexplorethebenefitsthatarederivedfromclosesupplierrelationships. Using survey response data from 425 buyersupplier relationships between a focal automotive components manufacturer and its global direct materials supply base, this study contributestothegrowing bodyofsupplierportfolio management literaturebytestingthree models and sixteen hypotheses that center on the investigation of the following research questions: 1. To what extent do buying firms manage clusters or sets of supply relationshipswithintheirdirectmaterialssupplybase? 2. How do suppliers perceptions of relationship closeness vary across a singlebuyerssupplybase? 3. How do integrative and distributive supply management practices differentiallyaffectsuppliersperceptionsofrelationshipcloseness? 4. How do suppliers perceptions of relationship closeness influence the operationalbenefitsderivedfromabuyersupplierrelationship?

Inthefirstsetofempiricalanalyses,aprogressionofconfirmatoryfactoranalyseswas used to test a secondorder factor model of buyersupplier relationship closeness. In particular,thisresearchadvancedasecondorderfactormodelofbuyersupplierrelationship closeness that consists of six firstorder factors: trust, commitment, information sharing, solidarity, flexibility, and shared benefit. Using a comprehensive validation process,

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empirical results indicate that relationship closeness is wellrepresented by a secondorder factormodelthatconsistsoffourfirstorderfactors:trust,informationsharing,solidarity,and sharedbenefit. In a second set of analyses, the causal relationships amongst strategic importance of the relationship, integrative supply management activity, distributive supply management activity, and relationship closeness were tested. Results from path analysis support the hypothesized positive relationships between strategic importance of the relationship and integrativeactivityandbetweenintegrativeactivityandrelationshipcloseness.However,the anticipated negative relationships between strategic importance of the relationship and distributive activity and between distributive activity and relationship closeness were not empiricallysupported.Resultsfromthestructuralmodelindicatethatthereisnorelationship between buying firms use of distributive activity and relationship closeness. Further, contrarytoexpectations,thepathcoefficientbetweenstrategicimportanceoftherelationship anddistributiveactivitywaspositiveandsignificant. Drawing support from relationalcontracting theory, the causal model of relationship closeness was respecified to include a causal path from integrative activity to distributive activity.Resultsfrommodelestimationsupportthenotionthatbuyersuseofintegrativeand distributivesupplymanagementactivitiesarepositivelyrelated.Further,resultsfromthere specified model indicate that integrative activity fully mediates the positive relationship initiallyfoundbetweenstrategicimportanceoftherelationshipanddistributiveactivity. Inthefinalsetofanalyses,thenatureanddistributionofsupplierrelationshipswithin the focal automotive components manufacturers supplier relationship portfolio were explored. Using a split sample approach to cluster analysis and the six dimensions of the

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relationshipclosenessconstructasclassificationcriteria,athreeclustersolutionwasderived. The means of the classification criteria and select demographic variables were used to describethedistributionofclosesupplierrelationshipsacrossthebuyingfirmssupplybase. Further,thenatureofeachsetofsupplyrelationshipswasassessedbycontrastingtheextent towhichacomprehensivesetofsupplymanagementpracticesandoperationalbenefitsdiffer across supplier relationship clusters. This exploratory analysis led to the development of several general conclusions. First, the focal manufacturer manages three distinct sets of supplierrelationshipswithinitssupplierportfoliothesesetsofsupplierrelationshipsvaryin terms of relationship closeness, intensity of supply management practices, and derived operational benefits. Second, the intensity of the buying firms supplier selection, direct involvement,andongoingsupplierevaluationvariesinaccordancewiththeclosenessofeach supplierrelationshipcluster.Third,greateroperationaladvantagesarederivedwithincloser supplier relationships clusters that have benefitted from higher levels of direct involvement supplier development efforts. Fourth, the relative importance of higherlevel selection criteria, buying firms provisions of direct assistance, and early supplier involvement in a buying firms new product development process are the key differentiators across sets of buyersupplier relationships. In aggregate, these results provide initial largescale survey supportfortheassertionsassociatedwith supplierportfoliomanagementtheory.

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CHAPTER1 INTRODUCTION
The fieldof supply managementhas beenthe focusofconsiderable interest inrecent years, duetoseveralmajordevelopments.First,purchasingpracticesaregainingincreasedattention asfirmscontinuetorationalizetheirbusinessportfolioandfocusoncorebusinesses,products andprocesses,andoutsourceothers. Second,directmaterialscostshaveamountedtoashigh as 6080% of an endproducts final cost. Third, intense competition and globalization are affectingoutsourcingpractices,asbuyingfirmsincreasinglyrelyontheirglobalsupplybase todeliverappealing, highqualityproductsinatimely,costeffective manner(Kraljic,1983 KrauseandEllram,1997aStalkandHout,1990).Fourth,firmsareemploying justintime (JIT)purchasingstrategiesinordertoreduceinventorycosts,shortenleadtimes,andimprove productivity (Dong et al., 2001). Under the JIT approach, ontime delivery and supplier quality are critical success factors as traditional buffer inventories are eliminated (De Toni andNassimbeni,2000).Assuch,buyingfirmspursuingaJITapproachhavemuchtogainby creatingand maintaininga networkofcompetentsupplierswhocanprovidea synchronized flow of high quality goods and customized services (De Toniand Nassimbeni, 2000 Wasti andLiker,1997). Inadditiontotheabove,firmsareactivelyreducingthesizeoftheirsupplybaseand are increasingly willing to take direct action to help the remaining suppliers (Trent and Monczka, 1998). As buying firms continue to consolidate purchasing volumes, there is increased incentive for purchasers to develop a closer relationship with their remaining suppliers, upon whom the buying firm has an increased reliance (Choiand Hartley, 1996). Supply management activities and buyersupplier business process integration represent

mechanisms through which buyersupplier partnerships may be strengthened (Bensaou and Anderson, 1999 Stump, Athaide, and Joshi, 2002 Trent and Monczka, 1998 Wasti and Liker,1997). Transactioncosteconomicsformsoneoftheearliesttheoriesadvancedinthiscontext. The primary thrust of transaction cost economics is that markets and hierarchies serve as alternategovernancemechanismsforfacilitatingefficientexchange(Coase,1937).Centralto transaction cost analysis is the premise that exchange efficiency is optimized when governance mechanisms are properly aligned with exchange characteristics (Williamson, 1991a, 1991b). While armslength marketbased relationships facilitate the efficient exchange of commoditylike goods, this mode of governance may not suffice when transactions require high degrees of buyersupplier coordination or when repeated transactionsareexecutedwithinanuncertainenvironment(Williamson,1991a).Traditional transaction cost economic theory suggests that higher levels of coordination and mutual adaptation may be moreefficientlyaccomplishedwithina hierarchical modeofgovernance inthisapproach,transactionsareinternalizedwithinasingleadministrativebureaucracyand managerialfiat,ratherthancontractualstipulations,servetocoordinateexchange. A contemporary view of transaction cost analysis recognizes the hybrid form of organizationasaspecialmodeofgovernancethatincorporatesmechanismsofbothmarkets and hierarchies (Dyer, 1996a Liker, Kamath, Wasti, and Nagamachi, 1996 Powell, 1987 Wasti andLiker,1997Williamson,1991a).Inaccordancewithrelationalcontractingtheory, high levels of coordination and adaptation may be efficiently achieved when marketbased transactionsareexecutedwithin buyersupplierrelationshipscharacterized by high levelsof bilateral relationshipspecific investments (Dyer, 1996c Williamson, 1991a). Thus, hybrid

governance mechanisms integratethe highpowered incentivesof marketsandthe enhanced adaptation, coordination, and safeguarding capabilities associated with hierarchies while simultaneously avoiding the high transaction costs associated with bureaucratic control (Williamson,1991a). Several studies have examined investment in relationshipspecific assets within the contextofrelationalcontractingtheory.Inastudycontrastingthestrategicsourcingpractices ofU.S.,JapaneseandKoreanautomakers,Dyeretal.(1998)notedthatJapanesepartnerstyle relationships included significantly higher levels of physical asset specificity and human resourcespecificityascomparedtoJapanesearmslengthrelationships.Comparatively,U.S. and Korean automakers achieved little differentiation, suggesting thatthese OEMs manage partnerstyle relationships in a similar manner as traditional armslength relationships. In a crossindustrystudyofsupplierdevelopmentadoption,Krause(1999)foundthattheadoption of transactionspecific supplier development activities is directly related to interfirm communicationeffortsandbuyersperceptionofsuppliercommitment,andindirectlyrelated tothebuyingfirmsperspectivetowardsuppliers.InalandmarkstudyofU.S.andJapanese automakers, Clark (1989) concluded that a significant portion of Japanese automakers advantage in new product development cost and leadtime is attributable to the extent to which Japanese automakers involve suppliers in the development of customized automotive components.Further,Clark(1989)suggeststhattheseadvantagesarelargelyattributableto theuniquerelationalattributesthatcharacterizeJapanesebuyersupplierrelationships. Consistent with relational contracting theory, these aforementioned studies highlight the importance of interdependence and mutual commitment in the coordination of collaborative marketbased transactions. A common theme amongst these studies is that

symmetrical investment in transactionspecific assets leads to closer, longerterm relationships that exhibit trusting or trustlike behavior. Close buyersupplier relationships facilitate collaboration, allowing firms to better serve customer needs such that mutual profitability isenhanced(WastiandLiker,1997).Fromabuyersperspective,partnerstyle relationships allow buyers to gain greater access to market information and suppliers technologiestodevelopnewproducts(Petersen,Handfield,andRagatz,2005),cutcostsand developmentleadtimeassociatedwithnewproductdevelopment(Clark,1989),andimprove buyers plant performance through JIT participation (De Toni and Nassimbeni, 2000). Benefits also accrue to suppliers that participate in partnerstyle relationships for example, close buyersupplier relationships allow suppliers to access buyers technology plans (Petersen et al., 2005), improve product quality through early involvement in the buyers design process (Liker, Kamath, and Wasti, 1998), and achieve higher levels of plant performancebyadoptingsynchronousJITefforts(Dong,Carter,andDresner,2001).Thus, both buyers and suppliers may achieve higher levels of performance as a result of collaborative,marketbasedrelationships. While a significant body of research highlights the benefits of close buyersupplier relationships, it is important to note that the development and maintenance of close relationships are not with cost or risk (Gadde and Snehota, 2000 Goffin, Lemke, and Szwejczewski, 2006 White and Lui, 2005). Additionally, empirical research suggests that thevastmajorityofclosebuyersupplierrelationshipsdonotqualifyasalliances,butmaybe moreaccuratelydescribedascooperativepartnerships(McCutcheon andStuart,2000).Atthe sametime,severalstudiesrebuttheimplicitnotionthatcloserbuyersupplierrelationshipsare unconditionally advantageous (Gadde and Snehota, 2000 Goffin et al., 2006 Johnston,

McCutcheon,Stuart,andKerwood,2004McCutcheonandStuart,2000).Citingtheimplicit bias toward close buyersupplier relationships in past research, Goffin et al. (2006, p. 191) assert, much of the literature has implied that close relationships are always desirable, without proper consideration of the contextual factors influencing their effectiveness. As impliedbyGoffinandcolleagues,buyersmaybenefitbyallocatinglimitedinternalresources towardthedevelopmentofcloserelationshipswiththosesuppliersthat mayprovidegreater value,oroperationalbenefit,tothebuyingfirm. A developing body of literature advocates a portfolio approach to buyersupplier relationship management (Bensaou, 1999 Dyer, Cho, and Chu, 1998 Goffin et al., 2006 Kraljic,1983OlsenandEllram,1997). Portfoliomodelssuggestacontingencyapproachto relationship management in which proactive supply management strategies may be used to developcloserrelationshipswithselectsuppliers(WagnerandJohnson,2004).Asimpliedby this approach, a buyers adoption of particular supply management practices and supplier integrationinitiativesshouldbeconditioneduponthebuyersperceptionoftheimportanceof thesupplyrelationshipbuyingfirmsshouldusemarketbasedsupplymanagementactivities with suppliers of lesser importance and reserve resourceintensive supply management activities for those suppliers who are most important to the buying firm. Thus, portfolio theoryadvancesthenotionthatfirmsthatachievealignmentbetween supplierimportanceand relationshipmanagementpracticeswillachievehigherlevelsofperformance.Byextension, portfolio theory suggests that firms must simultaneously manage a continuum of relationships,characterizedbyvaryinglevelsofclosenessandinterfirmactivity,acrosstheir supplybaseinordertoachievesuperiorprofitability.

This research advances the study of the theoretical linkages between supply management practices, buyersupplier relationship closeness, and the operational benefits derived from the management of close buyersupplier relationships using an empirical approach suggested by supplier portfolio management theory. This study builds on prior research on buyersupplier relationships (Andersonand Weitz, 1992 Cannonand Perreault, 1999Goffinetal.,2006MohrandSpekman,1994),supplymanagement(KannanandTan, 2002 Krause, 1999 Perdue and Summers, 1991 Smeltzer, Manship, and Rossetti, 2003 Vonderembse and Tracey, 1999 Wenli, Humphreys, Chan, and Kumaraswamy, 2003 Zsidisin and Ellram, 2001 Zsidisin, Ellram, and Ogden, 2003), and interfirm business process integration (Dong et al., 2001 Li, Rao, RaguNathan, and RaguNathan, 2005 Petersen et al., 2005) by conducting a comprehensive investigation of the antecedents and consequences of buyersupplier relationship closeness across a single buying firms supply base. In particular, this study investigates the relationships between: (1) several supply management practices, including supplier selection, supplier evaluation, and supplier development, (2) buyersupplier relationship closeness, measured in terms of trust, commitment, flexibility, shared benefit, solidarity, and information exchange, and (3) operational benefits, such as cost reduction opportunities, ease of technology sharing, effectiveness interfirm quality management efforts, supplier involvement in new product development, and suppliers use of collaborative relationship management practices within theirsupplybase. Thisstudyofbuyersupplierrelationshipsusessurveydataobtainedfromsuppliersto divisionsofaglobalautomotivecomponents manufacturertotestandextendthetheoretical assertions of supplier portfolio management theory. Using supplier response data to

characterizethe buyersupplierrelationshipdyad,thisstudyexaminesthe interrelationships betweensupply management,buyersupplierrelationship closeness,andoperational benefits within the automotive components industry. In contrast to past studies of the automotive industry, which tend to focus on the extent to which buyersupplier relationships are characterized byrelational norms(Dyer,1996aDyerandChin,2000DyerandChu,2000 Dyerand Ouchi,1993Dyer andSingh,1998)andcollaborative interfirmpractices (Clark, 1989 Clark and Fujimoto, 1991 Kamath and Liker, 1994 Liker et al., 1998 Liker et al., 1996Wasti andLiker,1997),thisstudy simultaneouslyconsidersintegrativeanddistributive approaches to supplier relationship management and examines how these opposing approachesinfluencebuyersupplierrelationshipcloseness. 1.1 ConceptualResearchModel

Toguidefurthertheoreticaldevelopmentandframethemainresearchobjectivesthatfollow, a conceptual model of relationship management is introduced in Figure 1.1 below. This conceptualmodelisbasedonacomprehensivereviewofbuyersupplierrelationshipresearch publishedwithinoperationsmanagement,supplychainmanagement,andmarketingjournals. The conceptual model highlights several salient aspects of this study. First, the conceptual model captures the interdependent nature of supply management factors and buyersupplier relationship closeness (Anderson and Weitz, 1992). In this study, supply management interactionismodeledasaprimarydeterminantofbuyersupplierrelationshipcloseness.As suggested by the conceptual model, supplier selection, supplier evaluation, and supplier developmentactivitiesmayfacilitatetherealizationofclosersupplierrelationships. Second, consistent with past buyersupplier relationship research (Bensaou and Venkatraman, 1995 Benton and Maloni, 2005 Cannon and Perreault, 1999 Goffin et al.,

2006 Griffith, Harvey, and Lusch, 2006 Heide and John, 1992 Maloniand Benton, 2000 Prahinski and Benton, 2004), this study models buyersupplier relationship closeness as a multidimensional construct. While past research identifies several potential dimensions of buyersupplier closeness, this study proposes that relationship closeness may be defined in termsoftrust,commitment,flexibility,solidarity,informationsharing,andsharedbenefit. Third,inaccordancewithsupplierportfoliomanagementtheory,closerbuyersupplier relationships are hypothesized to yield greater value in the form of operational benefits to boththebuyingandsupplyingfirms.Asshownintheconceptualmodel,thisresearchposits thatcloserbuyersupplierrelationshipsleadtoseveraloperationalbenefits,includinggreater opportunitiesforcostsavings,reducedbarrierstoproducttechnologysharing,moreeffective interfirm quality management, earlier supplier involvement in buyers new product development process, and improved supply management across the suppliers supply bases. By examining a broad set of intermediate operational benefits, this study mayprovide new insightsintothevaluederivedfromthemanagementofclosesupplyrelationships. Fourth, the conceptual model suggests that supply management efforts have a direct impact, in addition to an indirect effect, on the operational benefits derived from a buyer supplier relationship. Past studies ofbuyer communication strategy (Prahinskiand Benton, 2004)andsupplierdevelopment(Krauseetal.,2000)suggestthatsupplymanagementefforts directly influence performance gains. Thus, collaborative activities, such as direct supplier development may yield operational benefits, even within the context of a traditional, arms lengthbuyersupplierrelationship.

Figure1.1: Conceptual modelofrelationshipmanagement

SupplyManagement Supplier Selection RelationshipCloseness Trust OperationalBenefits Cost Management Opportunities Quality Management Effectiveness Technology Sharing Solidarity Cost Management Supplier Involvement inNPD SecondTier Supply Management

Commitment Supplier Negotiation Flexibility Supplier Evaluation

Shared Benefit Information Sharing

Supplier Development

1.2

MajorObjectivesofThisStudy

Themajorobjectivesofthisresearchseektoaddressseveralrelatedgapsinthecurrentbody of operations management literature. First, this study models buyersupplier relationship closenessasa multidimensional,secondorderconstructconsistingofsixdimensions:trust, commitment,solidarity,flexibility,informationsharing,andsharedbenefit.Importantly,this study aims to rigorously assess the validity of this secondorder construct and examine nomological validity by assessing the correlation between relationship closeness and measuresofthegoodnessofthebuyersupplierrelationship.

Second,thisstudyexaminestheextenttowhichasinglebuyermanagesaportfolioof supplier relationships across its supply base. Using cluster analysis, sets of supply relationships,whichvaryintermsofrelationshipcloseness,areidentifiedwithinthebuyers supplybase. Tocomplementpastresearch,thisstudyassessesthenumberofsupplierclusters within the supply base, the extent of differences in buyersupplier relationship closeness across clusters, and the spatial distribution of buyersupplier relationship closeness across clusters(Webster,1992). Third, this study investigates the extent to which a buying firm pursues particular supply management practices in order to achieve desired levels of supplier relationship closeness. This study advances the notion that buying firms may adopt integrative supply managementpractices,distributivesupplymanagementpractices,oracomplementarymixof integrativeanddistributivemanagementpracticesinordertoachievedesiredlevelsofbuyer supplier relationship closeness. Using past literature as a guide, this study identifies integrative supply management activities, which are collaborative in nature and represent a winwinapproachtosupplymanagement,anddistributivesupplymanagementactivitiesthat are marketbased, characterizing a zerosum (winlose) perspective (Krause, Scannell, and Calantone,2000PerdueandSummers,1991). Specifically,thisstudyexaminestheextentto which theuseof integrativeanddistributivesupplymanagementpracticesdifferacrosssetsof supplyrelationshipsandtheirdifferentialeffectonbuyersupplierrelationshipcloseness. Fourth, this study assesses a set of intermediary operational benefits that may be derived fromclose interfirm relationships. Several studies have highlighted the beneficial outcomes of closer buyersupplier relationships, including improved supplier performance (Cusumano andTakeishi,1991Humphreys,Li, andChan,2004 Krause,1997Krauseand

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Ellram,1997b Monczka,Trent,andCallahan,1993 WattsandHahn,1993),and improved buying firm performance (Curkovic, Vickery, and Droge, 2000 De Toni and Nassimbeni, 2000Humphreysetal.,2004Krause,1997Krauseetal.,2000). Thisstudyaimstoprovide complementaryevidenceofthevalueofclosesupplyrelationshipsbyexaminingauniqueand comprehensivesetofintermediaryoperationalbenefits,includingimprovedcostmanagement opportunities,enhancedtechnologysharingbetweenfirms,earliersupplierinvolvementinthe buyers new product development process, improved effectiveness of buyers quality management efforts, and improved management of indirect (thirdtier) suppliers. In

particular, this study examines how these operational benefits differ across supplier clusters thatcomposeasinglebuyingfirmsportfolioofsupplyrelationships. Theaforementionedobjectivesmotivatetheprimaryresearchquestionslistedbelow: 1. To what extent do buying firms manage clusters or sets of supply relationshipswithintheirdirectmaterialssupplybase? 2. How do suppliers perceptions of relationship closeness vary across a singlebuyerssupplybase? 3. How do integrative and distributive supply management practices differentiallyaffectsuppliersperceptionsofrelationshipcloseness? 4. How do suppliers perceptions of relationship closeness influence the operationalbenefitsderivedfromabuyersupplierrelationship? 1.3 OrganizationoftheDissertation

This dissertation presents the development and empirical assessment of sixteen hypotheses thatseektoadvancesupplierportfoliomanagementtheory. Thepresentationofthisempirical research study is segmented into eight chapters. Chapter 2 provides a comprehensive

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literaturereviewwithinthischapter,supplierportfoliomanagementtheoryispositionedasa logicalextensionof relationalexchangetheory.Additionally,anarrayofsupplymanagement practices and interfirm business processes are discussed. The third chapter presents the development of theoretical models and hypotheses that serve as the basis for empirical investigation. In particular, the sixteen hypotheses developed within this study are based upon three complementary models: (1) a secondorder factor model of buyersupplier relationshipcloseness,(2)acausal modelofbuyersupplierrelationshipcloseness,and(3)a supplier relationship portfolio model. Chapter 4 discusses methodological issues related to this study. As such, the survey instrument, construct measures, sample frame, survey administration,andstatisticalapproachesareexplainedinchapterfour. Chapter5reportsthe resultsoftheassessmentsofthe measuresused withinthis study.Inparticular,thischapter presentstheproceduresusedtoestablishconstructvalidityandtheresultsofvaliditytests.In chaptersix,theresultsofthe formaltestsof hypothesesarepresented.Chapter7examines theresultsofhypothesistestsandoffersexplanationsforcontradictoryfindings.Inthefinal chapter, the major contributions are summarized, limitations are presented, and ideas for futureresearcharediscussed.

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CHAPTER2 LITERATUREREVIEW
This chapter provides a comprehensive review of conceptual and empirical research that serves as a basis for the development ofthe theoretical models that follow. This literature reviewispresentedinthreemainsections. 2.1reviewsrelevantbuyersupplierrelationship theoryandattemptstoposition supplierportfoliomanagementtheoryasalogicalextensionof transactioncosteconomicandrelationalexchangetheories.Drawingfromrecentresearchin supplierportfoliomanagementtheory,thisresearchpositsthatthedevelopmentofinterfirm relational norms, use of supply management practices, and intensity of interfirm business process integration must be aligned with exchange conditions in order to realize superior performance within the buyersupplier relationship. As such, 2.2 reviews supply management practices, with particular focus on negotiation, cost management, and supplier development literature,inordertoadequatelydefineconstructsused in modeldevelopment. Similarly, 2.3 provides a comprehensive review of three interfirm business processes: supplier suggestion participation, logistics integration, and supplier involvement in new product development. As suggested in the introduction, these suppliersupported interfirm activities represent the extent to which the supplier is engaged in the buyersupplier relationship. Finally, 2.4 suggests that organizational competence is a precondition for successfulbuyersupplierjointeffort.

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2.1

BuyerSupplierRelationshipTheory

Thissectionexploresbuyersupplierrelationshiptheorywithinthecontextoftransactioncost economic and relational exchange theory, describes relationship closeness, and identifies supplier portfolio management theory as a viable lens to study buyersupplier relationship managementpractices.In2.1.1,thekeyattributesoftransactioncosteconomictheoryare cited and the complementary nature of relational exchange theory is introduced. In 2.1.2, buyersupplier relationship closeness is discussed within the context of a relationship continuum.Inaddition,thissubsectiondescribesrelationshipclosenessintermsofrelational norms,supplymanagementactivities,andinterfirmbusinessprocessintegration.In2.1.3, supplier portfolio management theory is reviewed and positioned as a logical extension of transactioncosteconomicandrelationalgovernancetheories. 2.1.1 ExchangeTheory Transaction cost economic (TCE) theory focuses on the costs associated with exchange governance,i.e.,thosecostsassociatedwiththeorganizationandcoordinationofsuccessive stagesofthevaluecreationprocess(Heide,1994).Heide(1994,p.72)describesgovernance asamultidimensionalphenomenonthatencompassestheinitiation,termination,andongoing relationshipmaintenancebetweenasetofparties.Withitsrootsincomparativecontracting, TCE theory seeks the minimization of transaction costs by identifying governance mechanisms that are most appropriate for a given set of exchange conditions (Williamson, 1991a). The selection of appropriate governance structure is primarily guided by three key transactioncharacteristicsthedegreetowhichtransactionspecificassetsareusedtosupport exchange (asset specificity), frequency of exchange, and the degree of uncertainty (Williamson, 1991a). Incorporated into the TCA theory developed by Williamson are two

14

behavioral assumptions: (1) actors are bounded rationally, i.e., they are limited by their information processing capabilities, and (2) actors may behave in a selfinterested, opportunisticmanner. Given the assumed behavior of actors in an exchange, TCA predicts that under specific exchange conditions markets (or hierarchies) are more attractive modes of governance. For example, in an uncertain environment, where actors find it difficult to anticipate futureeventsorthebehavioroftheirexchangepartner,transactionspecificassets cause markets to be less effective at curbing opportunistic behavior due to the lockin problemsassociatedwithspecializedinvestment.Asaresultofthedifficultyinredeploying highly specific assets, switching costs render alternate exchange partners less attractive (Teece, 1984). Similarly, transactions characterized by greater frequency may be more efficientlyexecutedwithinhierarchies,asthecostofspecializedgovernancestructureswill be easier to recover for large transactions of a recurring kind (Williamson, 1985, p. 60). However,whentransactionsarecharacterizedbyalimitedneedforadaptation,coordination, andsafeguarding,actorswillfavormarkets. The current form of TCE theory acknowledges an intermediate mode of governance that focuses on how governance problems can be managed without common ownership (RindfleischandHeide,1997,p.40 seealsoPowell,1987).Bolsteredbyrelationalexchange theory, this stream of literature suggests that advanced coordination, adaptation, and protectionmaybeachievedthroughtheestablishmentofclose,longtermtiesbetweenbuyer and supplier (Dwyer, Schurr, and Oh, 1987 Heide and John, 1990 Ring and Van De Ven, 1992, 1994). Relational exchange theory suggests that economic exchange occurs within a socialcontextandespousesaviewofinterfirmgovernancethatrepresentsadeparturefrom

15

pure economic motives (Zaheer and Venkatraman, 1995, p. 374). As such, a relational approach to interfirm governance relies on the development of relational norms, which specify permissible limits to an exchange partners behavior (Heide and John, 1992), to supplementtraditionalsafeguardingmechanismsadvocatedbyoriginalformsofTCEtheory (Dwyer et al., 1987). Extant research has identified the importance of several relational norms,includingtrust(BensaouandAnderson,1999BensaouandVenkatraman,1995Dyer, 1996aDyerandChu,2000,2003Ganesan,1994Gulati,1995MohrandSpekman,1994 Monczka, Petersen, Handfield, and Ragatz, 1998 Ring and Van De Ven, 1992, 1994 Spekman, Kamauff, and Spear, 1999 Zaheer and Venkatraman, 1995), commitment (Anderson and Weitz, 1992 Mohr and Spekman, 1994 Monczka et al., 1998), solidarity (HeideandJohn,1992),flexibility(DyerandChu,2003Heide,1994HeideandJohn,1992 Heide and Miner, 1992 Johnston et al., 2004 Noordewier, John, and Nevin, 1990), and information exchange (Cannon and Perreault, 1999 Dyer and Chu, 2003 Heide and John, 1992HeideandMiner,1992Spekmanetal.,1999). Theintegrationofrelationalexchangelogicwithtraditionaltransactioncosteconomic theory gives rise to a large, complementary setof governance mechanisms that buyers may use to coordinate, adapt, and safeguard exchange. Consistent with relational governance theory, a buyer may employ a number of ex ante mechanisms such as legal bonds (Anderson and Weitz, 1992 Cannon and Perreault, 1999 Dyer, 1996a Ring and Van De Ven, 1994), screening (Jones, Hesterly, and Borgatti, 1997 Stump and Heide, 1996), negotiation(RindfleischandHeide,1997), incentive alignment (Andersonand Weitz,1992 Dyer, 1996a Gulati, 1995 Heide, 1994 Stump and Heide, 1996), and establishment of cooperative norms (Anderson and Weitz, 1992 Bensaou and Venkatraman, 1995 Cannon

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andPerreault,1999HeideandJohn,1992Noordewieretal.,1990RingandVanDeVen, 1992), and ex post mechanisms including supplier monitoring (Heide, 1994 Heide and John,1990Jonesetal.,1997Noordewieretal.,1990StumpandHeide,1996),enforcement (Heide, 1994), and collective sanctions (Jones et al., 1997). Relational governance theory suggeststhatthedevelopmentofcooperative interfirm norms mayoffsettheneed formore traditionalgovernancemechanisms,suchascompletecontracts,negotiation,monitoring,and enforcement, and may subsequently facilitate more efficient interfirm exchange (Dyer, 1996aRingandVanDeVen,1992). 2.1.2 RelationalCloseness Prior research suggests that buyersupplier relationship closeness may be viewed on a continuum, ranging from pure market relationships, characterized by sharp in by clear agreement and sharp out by clear performance (Williamson, 1991, p. 271, referencing Macneil, 1974, p. 738), to committed partnerships. Frazier et al. (1988, p. 55) contrast marketbased relationships to relational exchanges, citing that relational exchange is characterizedbya(1)longertimehorizon,(2)focusonexchangefactorsotherthanprice,(3) enhanced interfirm communication, (4) more longterm planning between firms, (5) more frequentexchangewithfewersuppliers,and(6)higherlevelsofassetspecificity.Conversely, market exchange is characterized by armslength relationships, pricebased selection, competitive bidding, and low switching costs. In a conceptual model of marketing relationships, Webster (1992, p. 5) describes several points of buyersupplier integration alongarelationshipcontinuum:(1)transactionsdiscreteexchangebasedsoleonprice,(2) repeated transactions frequent purchase of branded goods, (3) longterm relationships longtermcontracts,butadversarialinnaturewithsignificantpricecontentionbetweenbuyer

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and supplier, (4) buyersupplier partnership high levels of mutual interdependence and limited supplier competition, and (5) strategic alliances partnership in which buyer and supplieralignstrategic,longtermgoals.Several empiricalandconceptualstudiessupportthe conceptofarelationshipclosenesscontinuum (Goffinetal.,2006Lambert,Emmelhainz,and Gardner,1996McCutcheon andStuart,2000Monczkaetal.,1998 Stuart,1993). Whilethegeneralnotionofrelationshipclosenessiswelldeveloped,extantresearchis initsincipientstagesofunderstandingthespecificattributesthatcharacterizeaclosebuyer supplier relationship. As shown in Table 2 below, most prior definitions of close buyer supplierrelationshipsrecognizetheroleoflongevityandthecooperativenature,intermsof informationsharing,andriskandrewardsharing,ofcloserelationships.Additionally,extant research suggests that close relationships are strategic (Li, Rao, RaguNathan, and Ragu Nathan, 2005 Monczka et al., 1998 Webster, 1992), involve interfirm dependency(Mohr andSpekman,1994Stuart,1993ZaheerandVenkatraman,1995),and leadtocompetitive advantage(Goffinetal.,2006McCutcheon andStuart,2000Monczkaetal.,1998Webster, 1992). Consistent with their definition of partnering (see Table 2.1), Ellram and Hendrick (1995)suggestthatafuturisticorientation,riskandbenefitsharing,andcommunicationissues suchascomputer linkages,corporatecommunication,and informationsharingare important attributes of a close buyersupplier relationship. In their crossindustry study, Ellram and Hendrick(1995)studiedrelationshipsbetween manufacturersandtheirclosestsuppliersand used matched dyad data to assess differences in buyers and suppliers perspectives of relationship closeness. Results from their study suggest that both buyers and their supplier partners desire a longerterm, orientation, greater risk and benefit sharing, more integrated

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computerintegration,andmorefrequentfacetofacecommunicationandoverallinformation sharing.

Table2.1: Definitionsofclosebuyersupplierrelationships
ResearchStudy Term Definition Ongoingrelationshipbetweentwofirmsthatinvolvesa commitmentoveranextendedtimeperiod,andamutual sharingofinformationandtherisksandrewardsofthe relationship. Aclosecooperationbetweenmanufacturersandtheir suppliers,whichbringmanyadvantagesincludingbetter quality,lowercosts,andreliabledelivery Longtermrelationshipbetweentheorganizationandits suppliersdesignedtoleveragethestrategicand operationalcapabilitiesofindividualorganizationsto helpthemachievesignificantongoingbenefits Longtermbuyersupplierrelationshipthatoffers sustainedcompetitiveadvantagesforbothfirmsthrough benefitsharingandjointproblemsolving Strategicrelationshipbetweenindependentfirmswho sharecompatiblegoals,striveformutualbenefit,and acknowledgeahighlevelofmutualinterdependence Longterm,cooperativerelationshipsdesignedto leveragethestrategicandoperationalcapabilitiesof individualparticipatingcompaniestoachievesignificant ongoingbenefitstoeachparty Strongintercompanydependencyrelationshipswith longtermplanninghorizons Relationshipthattakesplacewithinthecontextofa companyslongtermstrategicplanandseeksto improveordramaticallychangeacompanys competitiveposition. Closerelationshipwhichisbasedprimarilyuponone firmsdependenceforasignificantportionofitstotal businessuponanotherfirm

Ellram(1995a, p. 10, Partnering 1995b, p. 37) EllramandHendrick (1995,p.41) Goffinetal. Partnershiplike (2006,p.193) Relationship Lietal. (2005,p.622) Strategic Supplier Partnership

McCutcheonand Strategic Stuart(2000,p. 285) Supplier Alliance MohrandSpekman (1994,p.135) Monczkaetal. (1998,p.555) Partnership

Strategic Supplier Alliance Supplier Partnering Strategic Alliance

Stuart(1993,p. 23) Webster(1992)1

Zaheerand Venkatraman (1995,p.375)

1

Quasivertical Integration

WebstercitesthedefinitionofDevlinandBleakley(1988, p. 18).

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Table2.2: Keyattributesofclosebuyersupplierrelationships1
Construct Personalrelationship Specialproductcapability Dependency Sizeofsupplierorganization Relationshipmaintenance effort Volumeofturnoveras purchasedfromthesupplier, Speedofsupplierfeedback Suppliersnewproduct developmentcapabilities Suppliercomplainthandling
1

Description Thereexistsanextensiveandfamiliarcontactbetweenthe manufacturerandsupplieratthehumanlevel Supplierdeliverspartsspeciallydesignedpartsthatfulfillthe specificrequirementsofthemanufacturer Switchingfromthissupplieristootimeconsumingasthissupplier holdsamonopolyposition Supplierisapubliccompanywithmorethan500employees worldwide,manysubsidiaries,andasignificantglobalpresence Relationshipisveryinteractiveboththemanufacturerandthe suppliernurturetherelationshipbyregularlycontactingthe partnerandvisitingonaregularbasis Supplierdeliversahighvolumeofturnovertothemanufacturer annuallythemanufacturerconsidersthatsupplierasamain,Alist supplier Supplierrespondstoallinquiriespromptly Supplierleveragesistechnicalexpertiseandisinvolvedin developingandenhancingnewproducts Supplieracceptsfaultsinaproduct,reactsquickly,andcompletely eliminatesfault

ParaphrasedanddirectlyquotedfromGoffinetal.(2006, p. 201,Table5andp. 206207,AppendixA)

Recent research validates the notion that buyersupplier relationship closeness is a multidimensional construct. Using structured interviews, Goffin et al. (2006) explored the concept of relationship closeness with a sample of 39 purchasing and operations managers from18mediumsizedGermancompanies.Intheirstudy,theresearchersusedrepertorygrid analysis to identify 411 constructs that characterize buyersupplier relationships. Using frequencyofmentionandvariabilitymeasurestodeterminetheimportanceofeachconstruct, Goffinetal.(2006,p.201)determinedthatrelationshipclosenessmaybecharacterizedby9 keyconstructs:personalrelationship,specialproductcapability,dependency,sizeofsupplier organization, relationship maintenance effort, volume of turnover as purchased from the supplier, speed of supplier feedback, suppliers new product development capabilities, and

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suppliercomplaint handling. Apreliminarydescriptionof eachkey construct,basedonthe findingsofGoffinetal.(2006),islistedinTable2.2above. Synthesizingtheirfindingswithrelatedresearch,Goffinetal.(2006,Figure4,p.203) posit a conceptual model of supplier partnerships. A review of this model suggests that exchange conditions, supply management practices, interfirm business processes, and relational norms are integral to the development of close buyersupplier relationships. In particular,Goffinetal.(2006)notetheimportanceof(1)exchangeconditionsdependency (viewed as market thinness), supplier importance, and product customization, (2) supply managementpracticesjointproblemsolving,suppliertraining,nontenderpriceagreements, and single or parallel sourcing policy, (3) interfirm business processes joint new product development and logistics integration, and (4) relational norms trust, commitment, informationsharing,rewardsharing,personalrelationships,andcommunicationopenness.In accordancewiththeconceptualmodelofGoffinetal.,eachoftheserelationshipdimensions is expected to directly or indirectly influence the short and longterm performance of the buyingfirm. Additional understanding of relationship closeness may be gained by exploring the process in which close relationships are created. Dwyer et al. (1987) develop a conceptual model of relationship development in which relationship closeness evolves through five successive stages of interfirm interaction: awareness, exploration, expansion, commitment, and dissolution. In the awareness stage, potential exchange partners become aware of each otherandeachfirmattemptstopositionitselfasanattractivepartnerinadvanceofexchange. Inthesecondstage,exploration,firmsinitiateexchangeunderthepretenseofaninitialtrial, allowingthebuyerandsuppliertoassesstherisksandbenefitsassociatedwiththeexchange.

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Duringtheexplorationphase,theattractivenessoftherelationshipisassessed,partiesengage in communication and bargaining, concessions based on bargaining power are granted, and initialrelationalnormsthatsetexpectationsforfutureexchangeareestablished.Accordingto Dwyer et al. (1987), the third phase of relationship development involves the expansion of available rewards that result from the buyersupplier relationship. In the expansion stage, trust and interfirm relational satisfaction encourage increased risktaking within the dyad increased investment in transactionspecific assets leads to further interdependence between theexchangepartners.Thefourthstageofrelationshipdevelopmentismarkedbyinterfirm commitment.AsdefinedbyDwyeretal.(1987,p.19)commitmentreferstoanimplicitor explicitpledgeofrelationshipcontinuitybetweenexchangepartners.Elementsofinterfirm commitment include bilateral investment in the relationship and shared belief in the attractivenessoftherelationship.Thefinalstageofrelationshipdevelopmentisdissolution, which involves the termination of personal and commercial aspects of the interfirm relationship. Drawing from dependence theory, transaction cost economic theory, and relational governance theory, Heide (1994) posits a similar model of relationship development that consists of three primary dimensions: relationship initiation, relationship maintenance, and relationship termination. In Heides conceptual model, relationship initiation involves the comprehensive evaluation of potential exchange partners. To ensure interfirm goal

alignment,partnerevaluationinvolvesthecomprehensiveassessmentoftechnicalcapabilities aswellaspartnerattitudesandvalues.Relationshipmanagementinvolvesthedetermination of decision rights, development of contingency plans and adjustment processes that allow adaptation to future uncertainties, performance monitoring, alignment of incentive systems

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with interfirm goals, and selective use of enforcement mechanisms. Consistent with the approach of Dwyer et al. (1987) the final dimension of Heides model of relationship developmentinvolvestermination. A salient attribute of Heides (1994) model of relationship development is explicit recognition that each stage of relationship development may vary in accordance with the natureoftherelationship.Tothispoint,Heide(1994)notesthedistinctionbetween market (discrete exchange) and nonmarket exchanges, and further segments nonmarket exchange into unilateral and bilateral forms. Unilateral nonmarket exchange involves asymmetry of poweranddependenceanddescribesanexchangeinwhichonepartnerimposesdirectionon theother(Heide,1994).Conversely,bilateralexchangerecognizesthejointdevelopmentof policy toward the attainment of mutually beneficial goals (Heide, 1994). As such, market exchange,unilateralnonmarketexchange,andbilateralnonmarketexchangerepresentinter firmrelationshipsofincreasingcloseness.Importantly,asrelationshipsmovefromunilateral tobilateral,Heide(1994)suggeststhatselectionbecomesmorecomprehensive,plansbecome more flexible and facilitate mutual adjustment, monitoring becomes proactive and self performed,andincentivesarelongerterminnatureleadingtoanopenendedrelationship. RingandVandeVen(1994)advanceaclosedloopprocessmodelofthedevelopment of cooperative interfirm relationships that consists of three repetitive stages: negotiation, commitment,andexecution.Inthenegotiationstage,thepartiesdevelopjointexpectations about their motivations, possible investments, and perceived uncertainties of a potential business deal (Ring and Van de Ven, 1994, p. 97). This stage of the relationship is characterizedbyformalbargaining,inwhichthetermsoftherelationshipareidentified,roles and responsibilities are considered, and partners trustworthiness is assessed. Assuming

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negotiations lead to congruent expectations, parties enter the commitment stage of the relationship,inwhichthepartiesagreetoaninitialcourseofaction. Inthisstage,agreement regardingroles,responsibilities,andrulesofinteractionisestablished.Inthefinalstage,each partyexecutesitsrolesandresponsibilitiesinaccordancewiththeestablishedagreement. Intheirconceptual modelofthedevelopmentofcooperative interfirmrelationships, Ring and Van de Ven (1994) highlight several important attributes. First, the authors note that while the depiction of discrete relationship stages facilitates analysis, these stages are overlap in practicality. Second, the closedlooped nature of the model offers a means by whichrelationshipsmaygrowcloserthroughrepeatedcyclesofnegotiation,commitment,and execution.Third,RingandVandeVen(1994)advanceacontingency viewofrelationship development by explicitly noting that the duration of each stage may be influenced by exchange conditions such as environmental uncertainty, partner trustworthiness, and role responsibilities of the parties. Adding further insight into the development of interfirm cooperative relationships, Ring and Van de Ven (1994) suggest that most cooperative relationships emerge slowly and incrementally over time through repeated interaction characterizedbyincreasinglevelsofinterfirmcommitmentpriorcyclesoffairandequitable exchange motivate risktaking behavior in the form of increased transactionspecific investment, building higher levels of trust intothe relationship. Increased reliance on trust mitigates the need for complex/complete contracts and monitoring, facilitates greater flexibility,anddecreasestransactioncosts(RingandVanDeVen,1994). Using dyadic data from manufacturers and their matched distributors, Anderson and Weitz(1992)studythedevelopmentofcloserelationshipsthroughtheescalationofbilateral transactionspecific investment. In their study of commitment and pledges, Anderson and

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Weitz(1992)foundthatonepartysperceptionoftheotherpartyscommitmentispositively relatedtothatpartyscommitmenttothedyad.Furthermore,thatpartyscommitmenttothe dyadispositivelyrelatedtotheotherpartysperceptionof thatpartyscommitment.Assuch, this study provides initial empirical support for a process in which close, interdependent buyersupplier relationships are developed through reciprocal pledges and mutual commitments defined in part by investment in transactionspecific assets. Though not empirically tested, Anderson and Weitz (1992, p. 18) assert that mutual commitment facilitatesinterfirmcoordinationsuchthatmutualprofitabilityisenhanced. Severalsubsequentstudieshaveempiricallyexaminedtheroleoftransactionspecific investmentandrelational normswithin buyersupplierrelationships.InastudyofU.S.and Japaneseautomakersupplierrelationships,Dyer(1996c)assessestheeffectsofhumanasset specificity, physical asset specificity, and site specificity on operational, and subsequently, firmperformance.Usingscatterplotstotesthypothesizedrelationships,Dyer(1996c)finds preliminaryevidencethatsuggeststhatbothsitespecificity(measuredasthedistancebetween buyer and supplier manufacturing facilities) and human asset specificity (measured as the number of mandays of facetoface contact between buyer and supplier personnel and the number of supplier engineers colocated on the customers site) are positively related to operational performance. Further, Dyer (1996c) finds a positive relationship between asset specificity and buyersupplier combined profitability. In a study of automakersupplier relationshipsintheU.S.,Korea,andJapan,DyerandChu(2000)showapositiverelationship between transactionspecific investment and trust. In the pooled sample of suppliers, automaker assistance to the supplier and the number of mandays of facetoface buyer supplier contact were positively associated with higher levels of trust. In a later study of

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automakersupplierrelationshipsintheU.S.,Korea,andJapan,DyerandChu(2003)propose that buyersupplier trust facilitates more efficient exchange by attenuating the need for complex contracts, monitoring, and enforcement. Within the pooled sample, results from theirstudyindicatethattrusteffectivelyreducescostsof expostgovernancemechanisms,but hasnoeffectonexantetransactioncosts.InastudyoftheU.S.insuranceindustry,Zaheer andVenkatraman(1995)positedthatassetspecificityandtrustaffectthedegreeofprincipal agentquasiintegration,andthattrustandquasiintegrationareantecedentsofjointaction.In their study, asset specificity is measured in terms of procedural specificity (extent to which workflows and procedures were customized for a particular exchange partner) and human assetspecificity(degreetowhichemployeesskillsarecustomizedforaparticularexchange partner). Findings suggest that asset specificity and trust are positively related to quasi integration,andthattrustandquasiintegrationarepositivelyrelatedtojointaction. In aggregate, empirical evidence from extant buyersupplier relationship research suggeststhatcloserelationships leadtoimproved firm performance by attenuatingthe need for traditional and costly safeguarding mechanisms. Consistent with relational governance theory,thedevelopmentofclose interfirmrelationshipsallows buyers andsupplierstorely on relational norms, such as trust and information sharing, ratherthan complex contracting, renegotiations,andstrictmonitoring,tofacilitatecoordination,adaptation,andsafeguarding withinanexchangerelationship.Consequently,exanteandexposttransactioncostsmaybe reduced. Additionally, the presence of strong relational norms encourages risktaking behavior on behalf of an exchange partner that may be manifested in the investment of transactionspecificassetsthatfacilitatefurtherefficiencygains.

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2.1.3 SupplierPortfolioManagementTheory While investment in closer buyersupplier relationships may yield significant gains, a developing body of research suggests that there are considerable risks and costs associated with the development and maintenance of partner relationships. As noted in the aforementionedrelationshipdevelopment models,closerelationshipstendtodevelopslowly over time through a process of reciprocating transactionspecific investment and strengthening relational norms. Highlighting the opportunistic risk associated with partnering,Spekmanetal.(1999,p.104)notethatmanycompanies(andtheirprocurement managers)openlyfearbecomingtooreliantontheirsuppliersandworrythatthesesocalled partners might take advantage based on that dependency. Costs of creating and developingacloserelationshipmaybeexcessiverelationalcostsmayincludetravel,supplier education,andestablishingandplanningoperationalandstrategic links between buyingand supplying firms (Cavinato, 1992). White and Lui (2005) examine costs of cooperative alliances and posit that joint task complexity, interpartner diversity, and the threat of opportunism positively influence cooperative and transaction costs, increasing the time and effort required to manage the alliance. Empirical results suggest that the likelihood of spendingsubstantialtimeandefforttocoordinatewithapartneris:(1)positivelyaffectedby thethreatofopportunismandinterpartnerdiversityand(2)nonlinearlyrelatedtojointtask complexity. Based on their findings, White and Lui (2005) conclude that the governance decisionshould notbedrivensolely bytransactioncostanalysis, butmustalsoconsiderthe costsofcoordination.Further,WhiteandLui(2005)proposethatcoordinationcostsmaybe particularlysalientwithinhybridgovernancestructures.

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Given the cost and risk implications associated with close relationships, several researcherssuggestthattheuniformpursuitofcloserelationshipsacrossa supply base may haveadeleteriouseffectonabuyersperformanceandpositthatsupplierrelationships may be best managed using a portfolio approach (Dyer et al., 1998 Gadde and Snehota, 2000 Goffinetal.,2006McCutcheonandStuart,2000). AdaptingadefinitionfromWagnerand Johnson(2004,p.717),supplierportfoliomanagementinvolvesthemanagementofanarray of supplier relationships, each having various characteristics and each serving the [buying] firm in different ways. Drawing from its financial underpinnings (Markowitz, 1952), the portfolioapproachtosupplierrelationshipmanagementholdsthatsupplyrisksorreturnsmay be optimized by managing the supply base as a whole (Wagner and Johnson, 2004). The portfolio approach, as applied to buyersupplier relationships, suggests that firms must judiciouslymanageexternalrelationshipsandcommitmentsofresourcestowardrelationships in accordance with the benefits derived from each relationship (Turnbull, 1989). Similarly, OlsenandEllram(1997)arguethatportfolio models may beusedtoguidetheallocationof scarce internal resources across relationships by identifying specific groups of relationships that warrant greater investment. Thus, supplier portfolio management theory suggests that transactionspecificassetsmaybedifferentiallydistributedacrossthesetofafirmssupplier relationships in order to efficiently allocate scarce internal resources in accordance with exchange conditions. As such, a central thrust of supplier portfolio management is the determination of the role of each relationship and the pursuit of appropriate mechanisms to governeachrelationship. Importantly, the logic advanced by portfolio theory is consistent with that of transaction cost economic (TCE) theory and relational exchange theory. Similar to TCE

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theory, supplier portfolio management logic explicitly recognizes the costs associated with interfirm coordination. In particular, supplier portfolio management theory suggests that buyingfirmsconsistoflimitedinternalresourcesandespousestheallocationoftheselimited resourcesacrossrelatively homogeneoussubsetsofsuppliers inordertomaximizegains(or minimizerisks)acrosstheentiresupplybase. Aswithrelationalcontractingtheory,supplier portfolio management theory advocates highlevels of interfirm coordination through the deployment of transactionspecific investments and the development of relational norms. However, whereas selective relational literature implies the unconditional pursuit of closer, more integrated buyersupplier relationships, supplier portfolio management theoryseeks to definethecontextualfactorsinwhichclosebuyersupplierrelationshipsmaybeappropriate. Assuch,thisresearchpositionssupplierportfolioasalogicalextensionofTCEandrelational contractingtheory. When contrasting TCE and relational exchange theories with supplier portfolio management theory, a primary point of departure is the proceduralorientation that supplier portfoliomanagementtheorymaintains.WhereasTCEandrelationalcontractingtheoryoffer generalguidancetopractitioners,supplierportfoliomanagementtheory outlinesaprocessfor supplier relationship management. Owed to its operational roots, the execution ofsupplier portfolio management consists of two primary steps: (1) supply base segmentation and (2) differentialmanagementofeachrelationshipsegment(NelloreandSoderquist,2000). While extant research has identified several criteria that may be used to segment relationships (see Table 2.3 for a review), recent research suggests that Kraljics (1983) portfolioapproachiswidelyusedbypurchasingmanagers.Citingthewidespreadadoptionof Kraljicsapproachtopurchasingmanagement,CanielsandGelderman(2005,p.2)notethat:

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(1)theKraljicapproachhasreceivedlargescalerecognitionandhasattainedanincreasing degree of adoption (2) especially in Western Europe Kraljics matrix remains the foundation for purchasing strategies of many organizations across sectors and (3) several purchasing and supply management textbooks advocate Kraljics logic (e.g., van Weele, 2000). Furthermore, Kraljics conceptual models have received extensive conceptual treatment by several recent studies (Caniels and Gelderman, 2005 Dubois and Pedersen, 2002GeldermanandvanWeele,2003,2005Krause,Handfield,andScannell,1998Olsen andEllram,1997). Kraljic (1983) advocates a twostep approach to the management of material procurementitemsegmentationanddevelopmentofdistinctpurchasingstrategiesforeach itemgroup.AsillustratedinFigure2.1below,Kraljicproposesthatpurchaseditemsmaybe segmented into four groups based on the importance of the purchase and the complexity associated with the supply market: strategic items (high importance, high complexity), bottleneck item (low importance, high complexity), leverage items (high importance, low complexity),andnoncriticalitems(lowimportance,lowcomplexity). Kraljic(1983,p.110) views the importance of the purchased item in terms of profit impact and suggests that purchase importance may be affected by many factors, such as the profitability of the end product,thevalueofthepurchasedpartrelativetotheendproduct,costofthepurchaseditem relative to the total cost of the endproduct, and the impact of the purchased item on end productprofitability. Alternately, Kraljic(1983,p.110)characterizesthecomplexityofthe supply market as supply risk and identifies several supply risk factors: market thinness, technologyuncertainty,barrierstoentry,andlogisticscostsandcomplexity.

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Table2.3: Suppliersegmentationcriteria
ResearchStudy Bensaou(1999) SegmentationCriteria Buyersspecificinvestment Suppliersspecificinvestment CanielsandGelderman Profitimpact (2005) Supplyrisk DuboisandPedersen Importanceofpurchasing (2002) Complexityofsupplymarket Dwyeretal.(1987) Buyersmotivationalinvestmentinrelationship Sellersmotivationalinvestmentinrelationship GeldermanandVan Profitimpact Weele(2003) Supplyrisk GeldermanandVan Profitimpact Weele(2005) Supplyrisk Gaddeand Snehota Postureofrelationship (2000)1 (1)Businessvolume,(2)Relationshipcontinuity, (3)Singlesourcing Anderson andKatz RevenueImpact (1998) Procurementcomplexity Kaufmanetal.(2000) Collaboration Technology Kraljic(1983) Importanceofpurchasing Complexityofsupplymarket 1 Krapfeletal.(1991) Interestcommonality (1)Relationshipvalue,(2)Perceivedpower Krauseetal.(1998) SupplyRisk Volume/DollarVolumeofPurchase MasellaandRangone Timehorizonoftherelationship (2000) Natureofbuyersupplierinteraction NelloreandSoderquist Degreeofcodevelopment (2000) Specificationgenerator OlsenandEllram(1997) Importanceofpurchasing Difficultyofmanagingthepurchasesituation Spekmanetal.(1999) Degreeoftechnicalmanagement Degreeofcommercialcomplexity Svensson (2004) Supplierscommitmenttovehiclemanufacturer Commoditysimportancetovehiclemanufacturer WynstraandtenPierick Degreeofdevelopmentresponsibilityheldby (2000) buyer Developmentrisk
1

TypeofResearch Conceptual Surveybased Conceptual Conceptual CaseStudy Surveybased Conceptual

Conceptual Surveybased Conceptual Conceptual Surveybased Conceptual CaseStudy Conceptual Surveybased Surveybased Conceptual

Thesestudiesproposemultiplesegmentationmatricesinwhichonecriterionwascommonacrossall variants.

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Figure2.1: Kraljicspurchasingsophisticationmatrix(Kraljic,1983,ExhibitI,p.111)

High

Leverage Items Component Importance Noncritical Items

Low Low

Strategic Items

Bottleneck Items

SupplyComplexity

High

The classification of purchased items into groups facilitates the development of distinct purchase strategies for each group (paraphrasing Kraljic, 1983, Exhibit II, p. 112). For the procurement of strategic items, Kraljic (1983) advocates the development of long term supply relationships, contract staggering, extensive risk analysis and contingency planning, and logistics, inventory, and vendor control. Bottleneck items, while not strategicallyimportant,arecharacterizedbyhighlevelsofsupplymarketcomplexityandrisk. As such, Kraljic recommends a purchasing approach based on volume insurance, in which inventories are secured and backup plans are developed. Leverage items allow the exploitationofpurchasingpowerthroughvendorselection,productsubstitution,marketbased pricing strategies, aggressive negotiations, and order volume optimization. Finally, Kraljic asserts that buyers should pursue efficiency gains in the procurement of noncritical items throughproductstandardization,efficientprocessing,andinventoryoptimization.

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BuildingontheresearchofKraljic(1983),OlsenandEllram(1997)elaborateonthe factorsthatinfluencethestrategicimportanceofthepurchaseanddifficultyofmanagingthe purchasing situation. In particular, their conceptual research suggests that several competence, economic, and image factors may affect purchase importance. Additionally, OlsenandEllram(1997)positthatproductcharacteristics,supplymarketcharacteristics,and environmentalcharacteristics mayaffectsupplycomplexity.Thespecific factorsthataffect purchaseimportanceandsupplycomplexity,asdevelopedbyOlsenandEllram(1997,Tables 2and3,p. 104),aresummarizedinTables2.4and2.5below. A developing body of literature has begun to empirically explore Kraljics (1983) approach to supply management. Gelderman and Van Weele (2003) used the case study approach to explore measurement issues, strategies, and dynamics associated with Kraljics classificationmatrix.Theresearchersfoundthatbuyingfirmsuseseveralmethodstoclassify purchased material, including the consensus method, onebyone method, and the weighted factorscoringmethod.AsdescribedbyGeldermanandVanWeele,theconsensusmethodis a flexible approach to item classification, which is based on reasoning and discussion. Flexibility inherent in this approach allows participants to consider multiple criteria and debate the importance of each criterion to derive consensus. The onebyone method facilitates a quick, unambiguous approach to item classification in this approach, a single proxy, ratherthan multiple measures, is used foreach segmentation criterion. As such, the onebyoneapproachfacilitatescomparisonofdifferentmatricesusingthesamesegmentation criteria. Finally, the weighted factor scoring method allows a customized approach to item segmentation in which the weighted scores of multiple factors comprise each segmentation variable.

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Table2.4: Factorsaffectingpurchaseimportance1
PurchaseImportance Factors CompetenceFactors Description Extenttowhichthepurchaseispartofthebuyingfirmscore competencies Extenttowhich thepurchaseimprovestheknowledgeand technologicalstrengthofthebuyingfirm Volumeordollarvolumeofpurchases Extenttowhichthepurchaseispartofahighvalue,profitablefinal product Criticalityofthepurchasetomaintain leveragewiththesupplierfor otherbuys Supplierimage/brandname Potentialenvironmental/safetyconcerns

EconomicFactors

ImageFactors
1

AdoptedfromOlsenandEllram(1997,Tables2&3,p. 104)

Table2.5: Factorsaffectingsupplycomplexity1
SupplyComplexity Factors ProductCharacteristics SupplyMarket Characteristics Environmental Characteristics
1

Description Novelty Complexity Supplierspower Supplierstechnicalandcommercialcompetence Risk Uncertainty

AdoptedfromOlsenandEllram(1997,Tables2&3, p. 104)

In the same study, Gelderman and Van Weele (2003) examine purchase portfolio managementstrategiesanddynamics.GeldermanandVanWeele(2003)suggestthatbuying firmsmaychoosetoacceptcurrentsupplyconditionsthatinfluenceclassificationoractively manage the supply base to shift the classification of a purchased item from an existing positiontoamoredesirableclassification.Summarizingcasestudyfindings,theresearchers positthatbottleneckitemsposeasignificantrisktothebuyingfirm.Tomitigatetheserisks,a

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buyer may reduce the complexity of the purchased item, broaden specifications, or actively seek and develop new sources of supply. Through these supply management initiatives, bottleneckitemsmaybereclassifiedwithinthenoncriticalgroup.Actionsdesignedtoshift noncriticalitemstowardtheleveragequadrantincludethepoolingofrequirementssuchthat thebuyingfirmmayrealizeenhancedpurchasingpowerbyaggregatednoncriticalitemsinto large purchase quantities. Using this approach, the buying firm may now use aggressive biddingandnegotiationpracticestoreducepurchasepriceandexploittheleverageposition. Additionalstrategiesmayincludedevelopingstrategicpartnershipswithsuppliersofleverage and bottleneck items or terminating an undesirable strategic relationship in favor of a new supplyrelationship. Usingexperimentalandsurveybasedmethods,CanielsandGelderman(2005)extend theworkofKraljic(1983)byexaminingtheextenttowhichbuyersupplierinterdependence varies across supplier segments. In particular, Caniels and Gelderman (2005) assess inter firm dependence and relative power differences for suppliers classified as noncritical, leverage, bottleneck, and strategic using Kraljics (1983) segmentation criteria. Findings fromtheirstudysuggestthatsuppliersclassifiedinthestrategicandbottlenecksegmentshold greater relative power than the buying firm subsequently, buyers are relatively more dependentonthesesuppliers(CanielsandGelderman,2005).However,buyersholdgreater relative power when purchasing goods and services from leverage suppliers (Caniels and Gelderman, 2005). Interestingly, neither buyer nor supplier holds a power advantage when noncriticalgoodsareexchangedbetweenfirms(CanielsandGelderman,2005). Arelateddevelopingstreamofresearch,inspiredbyKraljic(1983),isconcernedwith the management of a portfolio of supplier relationships. Whereas the conceptual and

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empirical developments of Kraljic (1983), Olsen and Ellram (1997), and Gelderman and colleagues focus on the management of a portfolio of purchased items, several researchers have begun to examine the management of a portfolio of relationships between buyers and suppliers in an analogous manner (Bensaou, 1999 Dyer et al., 1998 Wagner and Johnson, 2004). In a crosssectional study of automotive industry, Dyer et al. (1998) contrasted supplier relationship practices amongst U.S., Korean, and Japanese automakers. In their study,Dyeretal.(1998)suggestastrategicapproachtosupplymanagement,inwhichbuying firms align supply management orientation with exchange conditions in order to realize competitive advantage. Using a process of segmentation and differential supplier management, buyers may benefit from the appropriate use of both armslength and partnershiprelationships. Drawing from TCE and relational exchange theory, Dyer et al. (1998) assert that supplierrelationshipsmaybecharacterizedasarmslengthorpartnershipstylerelationships. Whereas armslengthrelationships involve low levelsofcommitment, minimal dependence, and maximalrelianceon bargainingpower,buyersupplierpartnershipsarecharacterized by high levels of information sharing, extensive investment in productive transactionspecific assets,andtheuseofrelational norms,suchastrustandcommitment,toattenuatepartners opportunistic behavior. Citing the supply management practices of Japanese automakers, Dyer et al. (1998) assert that buying firms should analyze the strategic importance of each supplyrelationshipandpursueasupplymanagementpolicy inaccordancewiththestrategic importance of the supply relationship. Logically, suppliers deemed strategically important, i.e.,thosesupplierswhoprovide highvalue inputsthatarerelatedtothebuying firms core competencesandhelpdifferentiatetheendproduct,maywarrantapartnershipstyleapproach

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while suppliers of relatively unimportant items may be best managed through armslength relationships.Usingastrategicapproachtosupplymanagement,Dyeretal.(1998)positsthat buying firms must simultaneously manage both armslength and close partnership supplier relationshipsacrosstheirsupplybaseinordertobeeffective. Using survey data from firsttier automotive suppliers, Dyer et al. (1998) find that while Japanese automakers effectively segmented their supply base and differentially managednonstrategicandstrategicsuppliersusingarmslengthandpartnershipapproaches, respectively,thesamewasnottrueofU.S.andKoreanautomakers.Resultsfromtheirstudy suggestthatU.S.automakerstendtomanagebothnonstrategicandstrategicsuppliersusing an armslength approach, characterized by relatively low levels of transactionspecific investment, information sharing, and trust. Conversely, Korean automakers were biased towardpartnershiprelationshipsandsoughtcloserelationshipsacrosstheirsupplybase. Further analysis suggests that Japanese automakers segment their supply base into three groups based on the relative importance of the supplier: subsidiaries, suppliers of customized parts, and suppliers of standard parts. The subsidiary group consists of a small number of the most strategic suppliers Japanese automakers typically have at least a 20% ownership stake in these companies, which supply high value items. Within this supplier segment, interfirm collaborative practices include interfirm personnel transfers, joint strategicandoperationalplanning,andjointcapitalinvestment.Suppliersofcustomizedparts represent a supply group of moderate importance. While these suppliers provide highly customizedcomponentsthatrequireahighdegreeofinteractionandcoordinationbetweenthe automakerandsupplier,theautomakermaintainslittle(lessthan10%)ornoownershipstake in these firms. While exclusive, this group consists of roughly three times the number of

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suppliersasthe subsidiarygroup.Finally,the majorityofsuppliers,whoproviderelatively standardizedparts,comprisethethirdsuppliersegment.Astheprocurementofstandardized partsrequireslessdesign,development,andmanufacturingcoordination,practicesassociated with an armslength approach to supply management are more appropriate for this supplier segment. BuildingontheresearchofDyeretal.(1998),Bensaou(1999)usedsurveyresponse data from managers in the U.S. and Japanese automobile industry to develop a portfolio approachtorelationshipmanagement.Usingthelevelsofbuyersspecificinvestments(BSI) andsuppliersspecificinvestment(SSI)asrelationshipsegmentationcriteria,Bensaou(1999) identified four types of buyersupplier relationships: strategic partnership (high BSI, high SSI), captive supplier (low BSI, high SSI), captive buyer (high BSI, low SSI) and market exchange (low BSI, low SSI). Consistent with TCE theory, Bensaou (1999, p. 36) defines specific investment as investments that are difficult or expensive to transfer to another relationshiporthatmaylosetheirvaluewhenredeployedtoanothersupplierorcustomer.In Bensaous study, transactionspecific investments include (1) relational investments toward the development of longterm relationships, mutual trust, and cooperation, (2) tangible investments in buildings, tooling, and equipmentdedicated tothe exchange partner, and (3) intangible investments in the form of time or effort spent learning a partners business practices.Empiricalevidencesuggeststhatexchangeconditionsandthebuyingfirmssupply management approach vary for each relationship type. However, Bensaou (1999, p. 37) conclude that no one type of relationship offered performance benefits high and low performingrelationshipswerefoundineachgroupofrelationships,suggestingthateachtype ofrelationshipcanbewellorpoorlymanaged.Basedonthesefindings,Bensaoureachedan

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importantconclusionbuying firms must match relationshiptypewithexchangeconditions and adopt the appropriate management approach for each relationship in their portfolio in ordertobesuccessful. Wagner and Johnson (2004) offer further insights into portfolio relationship management. Using case study methods, Wagner and Johnson (2004) study the supplier relationships of 12 business units of several multinational manufacturers based in Europe based on their findings, they develop a conceptual model of supplier relationship portfolio management. In their conceptual model, supply base segmentation is accomplished using ABC(pareto)analysisandsupplyrelationshipsaregroupedinaccordancewiththeirrelative importance to the buying firm. Consistent with the prescriptions of Dyer et al. (1998), WagnerandJohnson(2004)suggestthatbuyingfirmsalignsupplymanagementorientation, i.e., the use of armslength versus collaborative management practices, with the strategic importance of the supply relationship, whereby transactional approaches that emphasize efficiency are reserved for Ccategory suppliers and partnership approaches are appropriate for Acategory suppliers. Achieving the desired level of relational closeness involves the prudent execution of supply base management and interfirm integration activities. In particular, WagnerandJohnson(2004) implicitlysuggestthatbuyers must manage supplier selection, supplier development, supplier involvement in new product development, and supplier logistical integration in accordance with the importance of the supply relationship. As such, closer supplier relationships warrant comprehensive supplier selection in order to minimize the risk of adverse selection, direct supplier development that enhances supplier capabilities,supplierinvolvementinnewproductdevelopmenttominimizecommercialrisk,

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and logistics integration through JIT adoption and interorganizational information systems (WagnerandJohnson,2004) 2.2 SupplyManagement

The preceding review of exchange, relational closeness, and relationship portfolio theories suggests that supply management orientation influences the level of closeness that characterizes a buyersupplier relationship. Extending conceptual developments of Wagner and Johnson (2004), this research suggests that supplier selection, negotiation, cost management, supplier development activities, and interfirm communication are critical to effective supplier relationship portfolio management. As such, the following subsections revieweachofthesebuyerdrivenactivities. 2.2.1 SupplierSelection Consistent with the definition offered by Dickson (1966), Swift and Gruben (2000) define supplier selection as the process of selecting the optimal supplier that offers the best all around package of product and service for the customer. Previous studies of supplier selection have focused on the process of identifying relevant supplier selection criteria and weighting each criterion per its importance to the buying firm. Extant studies of supplier selection have assessed the relationships between the importance of particular selection criteriaandbuyersgender(SwiftandGruben,2000),positioninthesupplychain(Choiand Hartley, 1996), and firm performance (Kannan and Tan, 2002 Vonderembse and Tracey, 1999). Supplier selection plays a critical role within the procurement process. As supplier relationships trend toward longerterm interaction, selection of supply partners becomes increasingly important. Supplier selection has been the focus of a significant body of prior

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research.CusumanoandTakeishi(1991)contrastedthesupplierselectioncriteriaemployed by U.S., Japanesetransplant, and Japanese automakers and found significant differences regarding the average importance that each group of automakers placed on each criterion. Particularlysalient,thisstudyfoundthatJapaneseautomakersplacedmuchmoreimportance on initial price, whereas U.S automobile manufacturers placed the greatest emphasis on the financialaffiliationsoftheir suppliers.Intheir studyoftheU.S.automotive industry,Choi andHartley(1996)foundthattheimportanceoffinanceandtechnologicalcapabilitydiffered perafirmspositioninthesupplychain.Specifically,thisstudyfoundthatU.S.automakers placed a greater importance on financial considerations and technological capabilities as compared to their secondtier suppliers. Swift and Gruben (2000) studied the association betweenbuyersgenderandtheimportanceofselectioncriteria.Thisstudyfoundthatfemale buyers place a greater emphasis on support and dependability as compared to their male counterparts. In their study of the health care industry, Lambert, Adams, and Emmelhainz (1997)comparedtheimportanceofeachselectioncriterionwiththeassessmentofthecurrent suppliers performance. Interestingly, results from their statistical analysis showed that primary suppliers underperformed with regard to their customers expectations in several areas. Quoting Narasimhan (1983, p. 27), Choi and Hartley (1996. p. 334) note the importanceofsupplierselectionbystating,Theimportanceofsupplierselection comesfrom thefactthatitcommitsresourceswhilesimultaneouslyimpactingsuchactivitiesasinventory management,productionplanningandcontrol,cashflowrequirements,andproductquality. Supplier selection has been shown to significantly influence a businesss financial performance. Vonderembse and Tracey (1999) examined the relationships between the

41

importance of supplier selection criteria, supplier performance, and manufacturing performance. Results from their study suggest that buyers tend to rateoperational supplier selection criteria, such as product quality, product availability, delivery reliability, and product performance, as very important. As such, Vonderembse and Tracey (1999) found only limited support forthenotionthatthebuyersemphasisofparticularsupplierselection criteriainfluencessupplierperformance.VonderembseandTracey(1999)developedfurther insightsbycontrastingtheimportanceofsupplierselectioncriteriaandsupplierperformance across high and low performing manufacturing firms. Findings from thier latter analysis indicate that higher performing manufacturing firms generally place greater importance on operational supplier selection criteria and that suppliers to higher performing firms achieve greater performanceimprovements. Kannan and Tan (2002) extended the empirical study of the importance of supplier selection criteria to include a comprehensive setof supplier selection criteria. Using factor analysis, Kannan and Tan (2002) identified five dimensions of supplier selection criteria: strategic commitment of the supplier to the buyer, ability to meet buyers needs, supplier capabilities,buyersupplierfit,andhonestyandintegrity.Usingsurveyresponsedatafroma sample of U.S. manufacturers, Kannan and Tan (2002) examined the relationships between thefivedimensionsofsupplierselectioncriteriaandfirmperformance.Findingsfromtheir study suggest that the weighting of selection criteria is significantly associated with the buyingfirmsmarketshare,returnonassets,productquality,andcompetitiveposition. 2.2.2 Negotiation Modelsofbuyersupplierrelationshipdevelopmentextoltheimportanceofnegotiationinthe developmentofacooperativerelationship(Dwyeretal.,1987RingandVanDeVen,1994).

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Engagement in the negotiation process suggests that both the buyer and supplier perceive potentialrewardswiththeexchangerelationship(Dwyeretal.,1987).Dwyeretal.(1987,p. 16)characterizenegotiationasan informationexchangeprocess inwhich buyersandsellers share preference and needs information through interactive question and answer sessions. However,Dwyeretal.(1987)cautionthatinformationsharingislessthancompleteinthe initialstagesofnegotiation.Similarly,RingandVandeVen(1994)characterizenegotiation asaprocessinwhichjointexpectationsregardingtermsandproceduresofpotentialexchange are developed and view negotiation as essential to the development of cooperative relationships. Ramsay (2004) offers additional evidence of the importance of interfirm negotiation,notingthat:(1)importantnegotiationsareoftenrelegatedtothehighestlevelsof staff (2) negotiation is considered critically important by all levels of staff and (3) negotiationdirectlyimpactsattainmentofstrategicgoals. Rognes(1995,p.13),citingLaxandSebenius(1986),definenegotiationasaprocess of potentially opportunistic interaction by which two or more parties, with some apparent conflictseektodobetterthrough jointlydecided actionthanthey couldotherwise.Extant research suggests that a buyer may pursue two primary negotiation strategies in order to increase the magnitude of the benefits realized by his/her firm: integrative strategies and distributive strategies (Clopton, 1984 Perdue and Summers, 1991 Ramsay, 2004 Rognes, 1995 Schurr and Ozanne, 1985 Smeltzer et al., 2003 Stuart and McCutcheon, 1995). Integrative bargaining strategies involve a soft bargaining stance and a winwin orientation. Usinganintegrativestrategy,abuyercollaborateswithasupplierinordertodiscoverwaysto increase the total benefits available to both parties within a buyersupplier relationship. Accordingly, integrativeapproaches involveextensive search fornew ideas,developmentof

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alternative agreements that reduce costs or improve performance, and joint assessment of alternateagreements.Conversely,distributivebargainingstrategiesespousehardbargaining tactics and zerosum outcomes in which a buyers gains necessitate supplier losses. Rather than increase the total benefits available to both parties, distributive bargaining approaches aim to maximize ones share of the benefits distributed between parties. Under the distributivebargainingregime, buyersuse hard bargainingtactics,suchasthreats,excessive demands,andpossiblydeceit,toelicitconcessionsfrom suppliers. Extantresearchdoesnotprovidecleardirectionregardingtheusefulnessofintegrative and distributive negotiation strategies within cooperative relationships (Ramsay, 2004 Rognes,1995).Consistentwithrelationalexchange logic,Smeltzeretal.(2003)assertthat negotiationstyleshouldmatchsupplymanagementorientationsuchthatintegrativestrategies support collaborative relationships and distributive approaches characterize negotiations within armslength relationships. In their case study, Smeltzer et al. (2003) found that an appropriatematchexistedin16ofthe25casesstudied.PerdueandSummers(1991)provide additional insight into the usefulness of negotiation strategies by conceptually developing integrative and distributive strategies as different, rather than alternate approaches to negotiation.Intheirmodelofnegotiationstrategies,PerdueandSummers(1991)positthata buyerscooperativeorientationispositivelyrelatedtothebuyersuseofintegrativestrategies and negatively related to the buyers use of distributive strategies. However, Perdue and Summers (1991) further stipulated that buyers operating in environments characterized by extreme cost competitiveness may be under heavy pressure to reduce costs, and may simultaneously pursue both integrative and distributive negotiation strategies to realize cost reduction goals, regardless of their cooperative orientation. According to Perdue and

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Summers (1991), integrative strategies may be initially used to expand the total benefits available to both parties subsequently, distributive tactics may be used to maximize ones shareofthetotalbenefits.Usingcrossindustrysurveyresponsedatatotesttheirhypotheses, PerdueandSummers(1991) findthatcostsensitivity ispositivelyrelatedtotheuseof both integrative and distributive approaches. Further, consistent with their hypotheses, buyers cooperativeorientationispositivelyrelatedtotheuseofintegrativestrategiesandnegatively related to distributive approaches. As such, the findings of Perdue and Summers (1991) indicate the buyers may use a mixed negotiation approach, which includes both integrative anddistributivetactics,suchthatbuyersbenefitsaremaximized. DespitetheempiricalresultsofPerdueandSummers(1991),Ramsay(2004)suggests thatseveral factorslimittheutilityofacombinedapproachtonegotiationandquestionsthe viabilityofamixednegotiationapproach.ConsistentwiththeviewofPerdueandSummers (1991),Ramsayassertsthatamixedapproachisonlylogicalwhenintegrativetacticsprecede distributive actions. Whereas integrative strategies require open disclosures and extensive informationexchange,distributiveapproachesrelyon maximal bargainingpowerbyclosely controllingtheexchangeof informationthatmaycompromiseabargainingposition.Citing theseconflictingpostures,Ramsay(2004)holdsthatearlyinformationdisclosuremayhinder theeffectivenessof themixedapproachthrough:(1)lossofcontrol,(2)lossofpower,and(3) loss of tactical flexibility and choice. Loss of control occurs when information disclosure confers control of the negotiation process to the other party (Ramsay, 2004, p. 224). Revelationofcriticalpreferencesearlyinthenegotiationprocessmayallowtheotherpartyto plananegotiationstancethatextractsadditionalbenefitsfromthebuyingfirm.Similarly,the earlydisclosureofinformationmayalsofacilitatethelossofbargainingpower.Forexample,

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disclosing the inability to find alternate sources of supply may considerably weaken the buyers stance during the distributive phase of negotiations (Ramsay, 2004, p. 224). Information disclosure during integrative negotiations may also lead to a loss of tactical flexibility and choice. In particular, disclosure of preferences or information that justifies your bargaining position may render particular distributive tactics, such as logrolling, ineffective (Ramsay, 2004, p. 224). In sum, Ramsay (2004) argues that information disclosure during integrative negotiations may significantly compromise the number of effective tactics available during the later stages of distributive bargaining and suggests furtherempiricalinvestigationofthemixednegotiationapproach. 2.2.3 CostManagement Cost management across firm boundaries has become strategically important as purchased goodsandservicesrepresentagreaterportionof totalcostsfor mostorganizations(Dubois, 2003). Ellram (2002b, p. 19) suggests that cost management involves understanding and managingtheorganizationssupplychain,costdriversandthecustomer valueproposition. Priorresearch indicatesthatcost managementactivities, suchastargetcosting,totalcostof ownership, and supplier cost structure analysis may facilitate successful supplier selection (DegraeveandRoodhooft,1999Ellram,1995cSmeltzeretal.,2003SmytkaandClemens, 1993), supplier negotiation efforts (Degraeve and Roodhooft, 1999 Ellram, 1995c, 2002b Smeltzeretal.,2003),andsupplierdevelopmentactivities(Ellram,1995c,2002b).Further, emerging evidence suggests that target costing, total cost of ownership, and supplier cost structureanalysismaysupportthedevelopmentofclosebuyersupplierrelationships(Zsidisin andEllram,2001).

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Target costing is an integrative, crossfunctional, and potentially interorganizational processthatmaybeusedtorealizeaprespecifiedlevelofcostforaproductorservicewith desired functionalities and attributes (Zsidisin and Ellram, 2001). Ellram (2002a, p. 235) definestargetcostingasaprocesswherebyanorganizationdeterminestheestimatedselling price for its product or service, less the desired profit, with the remainder equaling the targetcost.NewmanandMcKeller(1995)assertthattargetcosting isa crossfunctional processandrequiresanintegratedeffortfromdesignengineering,production,andpurchasing. To achieve cost reduction goals and meet the target cost, design engineers must design to cost,production must manufacturetocost,andpurchasing must buytocost(Newman andMcKeller,1995).Incorporatingasupplychainperspectivetothetargetcostingprocess, Ellram (2002a, p. 236) develops a target costing process that incorporates customer input, which identifies desired product/service characteristics and the target selling price, and supplier input. In accordance with Ellrams process model, suppliers input includes the sharing of internal cost structure data and participation in the cost analysis process. By sharingdetailedcostdataand specializedknowledge,suppliers may facilitatethesearch for process and product improvements through joint assessment of design alternatives, which may lead to cost improvements that result from design changes, material changes, or specificationchanges(Ellram,2002a). A significant body of literature espouses the total cost of ownership perspective (Cavinato,1991,1992DegraeveandRoodhooft,1999Ellram,1993,1995Ferrin andPlank, 2002SmytkaandClemens,1993).Fundamentaltosupplychainmanagementprinciples,the totalcostownershipphilosophyembracesaholisticviewofcostmanagementandbeginsto integrate total cost factors important to ultimate customers of a supply chain (Cavinato,

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1992, p. 286). While maintaining philosophical roots, recent research has positioned total costofownershipasanoperationalcostmanagementstrategy.Assuch,Ellram(1995c,p.4) defines total cost of ownership as a purchasing tool and philosophy which is aimed at understandingthetruecostofbuyingaparticulargoodorservicefromaparticularsupplier. Generally, the total cost approach implies a longterm orientation, consideration of factors otherthanpurchaseprice,andanaccurateunderstandingofallofthecostsassociatedwitha purchase(Ferrin andPlank,2002). The operationalization of the total cost approach draws heavily from activitybased costing approaches (Ferrin and Plank, 2002). Lere and Saraph (1995) argue that activity based costing, relative totraditional costing, provides a more accurate account of costs and their underlying drivers. Whereas traditional costing treats overhead costs as fixed and allocates overhead based on a measure of volume (e.g., direct labor hours), activitybased costing seeks to identify costs associated with particular actions (Lere and Saraph, 1995). Central to activitybased costing is the identification of cost drivers, which are defined as measuresusedtoproportionallydistributethecostofactivitiestothecostofobjects(Ferrin and Plank, 2002, p. 20 citing Geiger, 1999). Plank and Ferrin (2002) argue that drivers of totalcostsmaybemodularinnature.Acoresetofcostdriversmaybeconsistentlyapplied across diverse commodities conversely, other cost drivers may only be relevant to specific classesofcommodities. A review of extant research indicates several competing models of total cost of ownership. Cavinato (1992) posits thattotal costs may be viewed in a hierarchical fashion andforwardsamodelthatoutlinesbuyingfirmscosts,suppliersandcustomerscosts,and endcustomercosts.Inhismodel,Cavinato(1992,p.294)includescostsassociatedwiththe

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price of the purchased item, direct transaction costs, supply relational costs, landed costs, quality costs, operations and logistics cost, indirect financial costs, tactical input costs, intermediate customer costs, and strategic business costs. Using an empirical approach, Ferrin and Plank (2002) identified 237 cost drivers and used factor analysis to group these costdrivers into 13 categories. In a more succinct framework,Ellram (1993) suggests that total cost of ownership may be viewed as consisting of three main components: pre transaction components, transaction components, and posttransaction components. Ellram (1993,p.7)definespretransactioncostsasthosethatoccurpriortoreceivingthepurchased itemandincludecostsarisingfromsearch,investigation,supplierqualification,andsupplier education. Transaction cost components are associated with the order fulfillment process purchaseprice,delivery,tariffs andduties,and inspectionareprimarydriversoftransaction costs.Posttransactioncostsareincurredfollowingthereceiptofthepurchaseditemandmay include costs associated with line rejects, field failures, maintenance and repairs, and reputationeffects.Finally,DegraeveandRoodhoof(1999)positahierarchicalmodeloftotal costs in which costs are assessed at the supplier, ordering, and unit levels. In their model, supplierlevelcostsinvolvetheactivemanagementofcurrentsuppliersandmayincludeaudit costs and salaries of purchasing professionals who manage supplier relationships ordering costsaretriggeredfromindividualordersandmayincludedeliveryandreceivingcostsunit levelcostsareassociatedwithspecificpieceswithinanorderandmayincludecostsofpoor qualityandwarranty (DegraeveandRoodhooft,1999). Previousresearchsuggeststhatsuppliercoststructureanalysismayfacilitatetotalcost of ownership and target costing analyses (Ellram, 2002a). Supplier cost structure analysis involves the decomposition of a suppliers cost structure for manufacturing a product or

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providingaservice(Zsidisinetal.,2003).Primarilyfocusedonthesupplierstransformation processes, the main goal of cost structure analysis is to identify high cost areas within suppliersoperationsthatprovideopportunityforcollaborativecostreduction(Zsidisinetal., 2003).AsnotedbyZsidisinetal.(2003),suppliercoststructureanalysisrequiressuppliersto share sensitive cost data in order to identify high cost areas and is facilitated by intense informationexchangeandinterfirmteamefforts. In related studies, Zsidisin and colleagues argue that target costing, total cost of ownership, and cost structure analysis techniques require suppliers to share sensitive information, and hence are particularly appropriate within relationships characterized by mutual commitment, high levels of trust, open communications, and an overall cooperative orientation(Zsidisinand Ellram,2001 Zsidisin etal.,2003). Assuch,ZsidisinandEllram (2001) posit that target costing, total cost of ownership, and cost structure analysis may be particularlyapplicablewithinclosebuyersupplierrelationships.Usingsurveyresponsedata fromacrosssectionofNAPMpurchasingmanagers,ZsidisinandEllram(2001)findthatthe use of target costing, total cost of ownership, and cost structure analysis is positively associatedwithrelationalcloseness.Inafollowonstudyusingthesamedataset,Zsidisinet al. (2003) conclude that purchasing organizations characterized by high levels of intra organizational statusandaccountabilitytendtomoreactively engage intargetcosting,total costofownership,andcoststructureanalysis. In sum, the developing body of cost management literature suggests that cost management activities occur within cooperative buyersupplier relationships. However, NewmanandMcKeller(1995)cautionthatbuyingfirmsmustcarefullypursuetargetcosting and supplier cost structure analysis activities and avoid using these approaches to merely

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beatdowntheprice.Inparticular,NewmanandMcKeller(1995)advisebuyingfirmsto (1)judiciouslyexercisepower,(2)usecostmanagementtoolswiththeexpectationofalong termrelationship,and(3)provideincentivestothesupplierinexchangeforpricereductions. Contrarytotheserecommendations,NewmanandMcKeller(1995,p.16)findthatamajor U.S.automakerrequiressupplierstoprovideadetailedpricingstructureintheirbids,showing directlabor,directmaterials,overheadindollarsalongwiththemethodusedtocomputeit,as well as sales, general and administrative expenses, and profit per unit. As noted by the authors,thisapproachtocostmanagementmaybecharacterizedasadversarialinnature,and, contrary to the assertions of previous empirical research, consistent with an armslength relationship.Furtherresearchmayprovideadditionalinsightintothecollaborativenatureof costmanagementactivities. 2.2.4 SupplierDevelopment Integrating the definitions of Krause and Ellram (1997a) and Hahn et al. (1990), supplier development can be defined as any effort pursued by a buying firm to improve the performanceand/orupgradethecapabilitiesofanexistingsupplierinordertomeettheshort or longterm business objectives of the buying firm. Extant research has identified several activities that fall under the umbrella of supplier development, ranging from lowrisk initiatives such as rewards contingent on performance, to highrisk initiatives like supplier specific investments (Krause and Scannell, 2002). As a predictor variable, supplier developmenthasbeenpositivelyrelatedtocloserbuyersupplierrelationships(Cusumanoand Takeishi,1991DyerandChin,2000Dyeretal.,1998HeideandJohn,1990Humphreyset al., 2004 Krause and Ellram, 1997b), improved supplier performance (Cusumano and Takeishi,1991Humphreysetal.,2004Krause,1997KrauseandEllram,1997bMonczka

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etal.,1993WattsandHahn,1993),andimprovedbuyingfirmperformance(Curkovicetal., 2000DeToniandNassimbeni,2000Humphreysetal.,2004Krause,1997 Krauseetal., 2000). Insum,severalstudieshaveshownthebeneficialoutcomesassociatedwitheffective supplierdevelopmentefforts. Buyingfirmspursuesupplierdevelopmenttoachievetwomaingoals:(1)toimprovea suppliersimmediateperformanceor(2)toimproveasupplierscapabilities(WattsandHahn, 1993). Trent and Monczka (1998) found that, although there is an increasing emphasis on developingsuppliercapabilities,themajorityofthesupplierdevelopmenteffortexpendedby buyingfirmsisaimedatimmediatelyimprovingsupplierperformance.Developmentefforts aimed at developing supplier capabilities have been referred to as proactive, aggressive (Monczkaetal.,1993TrentandMonczka,1998),andstrategic(Krauseetal.,1998),while those intended to improve supplier performance have been described as reactive (Krause et al.,1998).Inastudyofthesupplierdevelopmentprocess,Krauseetal.(1998)foundseveral differences between strategic and reactive approaches to supplier development. In general, firmspursuingstrategiceffortsfocusedonthedevelopmentofstrategicsuppliersinorderto create a worldclass supply base capable of providing competitive advantage (p. 45). Conversely, firms maintaining a reactive posture tended to be motivated by supplier non performance,effectivelyinvolvingthemselvesinsupplierperformanceremediation. Thereareavarietyofapproachesthatabuyingfirmmayemployinordertoimprovea suppliers performance or capabilities. A traditional approach used to motivate supplier improvement relies on the use of direct competition (Giunipero, 1990). In a study of JIT supplier performance, Giunipero (1990) found that a small group of respondents felt that competition, price review, and the renegotiation of contract price and performance factors

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continuedtobethebestwaystomotivateJITsuppliers(p.22).Effectively,theuseofdirect competition leverages the credible threat associated with open market bargaining and low switchingcosts(LanderosandMonczka,1989).Inthecasewherethereareseveralpotential suppliers of a welldefined product, such as a commodity, supplying firms are motivated to meet the performance improvement targets of the buying firm or risk losing the business (Giunipero,1990).Asaresultofaggressiveopenmarketbiddingandtheadministrationof shortterm supply contracts, the buying firm manipulates market forces to positively affect supplierperformance(Hahn,Kim,andKim,1986).Therelianceonmarketforcesasameans ofsupplierdevelopment minimizesthe effortexpended bythe buying firm andrepresentsa lowriskapproachtosupplierdevelopment(Krause,1997). Notonlyisitimportanttosetaggressivesupplierperformanceexpectations(Monczka etal.,1993),itisalsoequallycriticaltoassesssupplierperformance(Hahn,Watts,andKim, 1990) and provide feedback to suppliers regarding their performance (Giunipero, 1990 PrahinskiandBenton,2004WattsandHahn,1993).Benchmarkingactivities,costanalyses, andperformancereviewsprovide establishedprotocolsthroughwhich buyersdrive supplier performance improvements. Benchmarking activities involve the comparison of a particular suppliers price, quality, delivery, flexibility and technical capabilities with a recognized standard (Hahn et al., 1990 Krause and Scannell, 2002 Zsidisin et al., 2003). In the case wherethe buying firmrelieson multiplesources ofsupply,theperformanceofthe highest rankingsuppliermaybeusedastheperformancestandard(KrauseandScannell,2002).By providing supplier performance feedback relative to their competitors, a buying firm may implicitly invoke market forces to drive supplier performance improvement. Cost analysis extends benchmarking beyond the evaluation of supplier performance and involves the

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assessment of a suppliers internal cost structure (Zsidisin et al., 2003). By decomposing costs by functional area for several suppliers, buying firms can compare elemental costs amongstsuppliersandconstructanidealsupplierprofileusingthelowestfunctionalcostsin eachfunctionalarea.Bycontrastingsuppliercostperformancewiththatoftheidealprofile,a buying firm maypressuresupplying firmstoaddressspecificareaswherecostperformance lagsthatoftheidealsupplier. Thefundamentalimportanceofsupplierevaluationwarrantsadditionaldiscussion,as supplier evaluation serves as a key enabler for many other supplier development activities, including benchmarking activities, supplier certification, and the administration of performanceincentives.WhereasKrauseandEllram(1997a)notethatsupplierevaluationin andofitselfisnotsupplierdevelopment(p.25),thisresearchoffersadifferingperspective and proposes that supplier evaluation activities may directly and indirectly affect supplier performance improvement. As an enabler of supplier development activities (i.e., performancereviews,benchmarking, costanalysis,and incentives),supplierevaluation may indirectly affect supplier performance. As an enabler, the effect of supplier evaluation on supplierperformanceimprovementismediatedbysecondarysupplierdevelopmentactivities, suchastheadministrationofperformancerewards.Inthiscase,theindirectroleofsupplier evaluation is consistent with the views of Krause and Ellram (1997a). However, the administration of a comprehensive supplier evaluation program may directly affect supplier performance as well. In the absence of secondary supplier development activities, supplier evaluation provides the option for future supplierrelated actions. Arguably, the mere presenceofacomprehensivesupplierevaluationprogram mayprovideacrediblethreatthat

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serves to motivate poorly performing suppliers to improve and high performers to maintain worldclassperformance. An array of incentives may also be used to motivate supplier selfimprovement. Potential incentives include the use of financial incentives as well as the offer of repeat or new business to suppliers who meet the performance expectations of the buying firm (Handfield,Krause,Scannell,andMonczka,2000).Forexample,Handfieldetal.(2000)note that Honda effectively uses financial incentives to reward superior performance by relating the terms of monetary settlement to supplier performance. Suppliers that achieve higher performance standards are paid sooner than those achieving less stringent standards (Handfield et al., 2000). Dyer and Ouchi (1993) find that Japanese automakers instill competition amongst a limited number of suppliers by redistributing a small portion of existing business based on each suppliers relative performance. As such, business may be divertedfromthelowperformingfirmuntothesupplierthatmaintainssuperiorperformance (DyerandOuchi,1993).Hence,bothlowperformingandhighperformingsuppliersmaybe motivated to improve their performance. De Toni and Nassimbeni (2000) hold that contractual incentives, such as longterm contracts, encourage the supplier to be more innovativeandtoimprovequalityandservice(p.634). Enhanced supplier performance may also be achieved through supplier recognition efforts. Hahn et al. (1990) found that an American automotive firm classified its suppliers intooneof fourratingcategories basedon minimumperformancecriteria.Suppliers inthe highest category are recognized as worldclass suppliers while those in the lowest category areslated forelimination.Inacase studyoftenBritish firms,Galtand Dale(1991) found thatthemajorityofthefirmsintheirstudyrewardedgoodsupplierswithpreferredstatus,

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noting that buying firms are more likely to buy from preferred suppliers, even when faced with a slight price disadvantage, because these suppliers maintain proven quality assurance systems. Galt and Dale (1991) also noted that buying firms having progressive supplier development programs implemented formal award programs in order to recognize superior supplierperformance.Awardsformeritoriousperformanceweredeliberatelydesignedtobe difficult to achieve, so they remain prestigious and can be used to the advantage of the supplier in marketing its operations and products (Galt and Dale, 1991), p. 22). Whereas preferred status may lead to more business with the buying firm, award programs are designed to assist suppliers in obtaining additional sales from other buying firms. Hence, bothpreferredstatusandawardsprogramsmaymotivatesupplierstoimproveperformance in order to realize additional business opportunities (Krause et al., 2000 Monczka et al., 1993TrentandMonczka,1999). Suppliertrainingprogramsandthetemporaryallocationofbuyingfirmpersonneltoa suppliers operations facilitate the transfer of knowledge from the buying to the supplying firm (Bensaou, 1999) in an effort to develop supplier capabilities (Monczka et al., 1993). Extantresearchhasshownthatbuyingfirmshavepursuededucationandtraininginitiativesin order to bolster suppliers new product development capabilities (Ragatz, Handfield, and Scannell, 1997), quality assurance processes (Inman, 1990 Vermani, 2003), logistical linkages (De Toni and Nassimbeni, 2000 Dowlatshahi, 2000), understanding of buyers performance requirements (Galt and Dale, 1991), and statistical process control techniques (Vermani, 2003). Hartley and Choi (1996) argue that handson training of supplier team members is required to sustain improvements gained through buyersupplier improvement projects. Similarly, Hartley and Jones (1997) assert that supplier training institutionalizes

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changeandallowsthesuppliertopursuecontinuousimprovementwithoutthebuyingfirms involvement. In addition to using road shows (Galt and Dale, 1991), supplier training centers (GaltandDale,1991Handfieldetal.,2000),inhousetrainingclasses(GaltandDale,1991), buyersupportedselfstudygroups(Sako,2004),supplierassociations(DyerandOuchi,1993 Sako, 2004) and shadow consultants (Hartley and Jones, 1997) to administer supplier training and education programs, buying firms have also assigned direct employees to suppliers operations to facilitate technical knowledge transfer. Evidence of personnel transferasa meansof supplierdevelopmentiswelldocumented intheautomotive industry. HyundaiCorporationsendsengineerstosupplierfacilitiestoteachlayoutdesignandperform time and motion studies to improve supplier productivity(Handfield et al., 2000). General Motors Corporation lends teams of engineers toassist suppliers in the adoption of lean and efficient production methods (Monczka et al., 1993). Similarly, Toyota, Honda, Ford, Chrysler,andBMWmanagesupplierdevelopmentprogramswhereOEMtechnicalpersonnel leadonsitesupplier improvementefforts(Dyer etal.,1998 Handfieldetal.,2000Hartley andJones,1997HartleyandChoi,1996HelperandKiehl,2004Monczkaetal.,1993).Ina case study of large Korean conglomerates, Choi and Choi (2002) found that large conglomerates,whichhadfewercashreservesasaresultoftheAsianfinancialcrisis,tended to dispatch engineers to supplier facilities in order to transfer specific product and process knowledge. Trent and Monczka (1998) found that from 1990 to 1997, U.S. firms were increasingly reliant on education and training programs and personnel transfers as direct meansofimprovingsuppliercapabilities.

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Investments in buildings, tooling, or equipment that are dedicated to a particular supplier represent direct investment in a supplier by the buying firm (Bensaou, 1999). Monczkaetal.(1993)reportedthatToyotalentequipment,inadditiontoengineersandother resources, to its longterm suppliers in order to accelerate the development of supplier capabilities. Similarly, Handfield et al. (2000) notethat in some cases, Honda will own a percentage of a suppliers equipment for capitalization purposes and allow the supplier to repay the investment over time (p. 44). Further, Quayle (2000) suggests that major manufacturersmayinvestincomputerhardwarefortheirsupplybaseinordertopromoteEDI usage. While direct investment in suppliers physical assets is not as prevalent as supplier training and personnel transfers, Trent and Monczka (1998) found that U.S. firms are pursuingdirectinvestmentintheirsupplyingfirmsatanincreasingrate. 2.2.5 InterfirmCommunication Thealignmentoforganizationalstructuresofthebuyingfirmandthesuppliermayaffectthe efficiency in which supplier development goals can be achieved. Carter and Ellram (1994) argue thatthe structureof the buyerseller relationship must shift from a serial to a parallel relationship structure. A serial relationship structure represents a traditional buyerseller relationshipinwhichthepurchasingagentofthebuyingfirmandthesalesrepresentativeof the supplier serve as the primary interfaces for information exchange. To overcome deficienciesassociatedwiththeserialstructure,CarterandEllram(1994)recommendthatthe buying and supplying firms adopt a parallel relationship structure, in which primary informationflowsbetweenaplethoraofcommunicationlinkagesthattiethefunctionalareas ofthebuyingandsupplyingfirmstogether.Inaparallelstructure,functionalunitswithinthe buying and supplying firms maintain direct communication, rather than funneling all

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communication through the purchasingmarketing interface. This allows richer communication that is fundamental to mutual adaptation and knowledge sharing inherent in supplierdevelopmentefforts(CarterandMiller,1989).Byadoptingaparallelconfiguration, the buying and supplying firms may align their organizational structures in a manner that maximizestheefficiencyofinformationflowbetweenthetwofirms. 2.3 InterfirmBusinessProcessIntegration

Exchange,relationalcloseness,andrelationshipportfoliotheories suggeststhatthe intensity ofinterfirmbusinessprocessintegrationinfluencesthelevelofclosenessthatcharacterizesa buyersupplierrelationship.ExtendingtheconceptualdevelopmentsofWagnerandJohnson (2004),thisresearchsuggeststhatsuppliersuggestionparticipation,buyersupplierlogistical integration, and supplier involvement in new product development are critical to effective supplierrelationshipportfoliomanagement.Assuch,thefollowingsubsectionsrevieweach ofthesesuppliersupportedactivities. 2.3.1 SupplierSuggestionParticipation Leanmanufacturingtechniquescenterontherelentlessandcontinuouspursuitofeliminating waste (Womack and Jones, 1996). Supplier suggestion programs represent a formalized mechanism in which continuous improvement ideas and efforts bridge firm boundaries. Designed to increase supplier involvement, supplier suggestion programs seek to tap new sourcesofideasthatleadtocostsavingsand/oravoidanceoffuturecosts(Hartley,Greer,and Park, 2002). Hartley et al. (2002, p. 20) report that several large companies, including Chrysler, Delphi, Honeywell, Nortel, and PPG, have instituted formal supplier suggestion programs. Case study and anecdotal evidence suggest that effective supplier suggestion programs generate significant benefits for both buying and supplying firms (Dyer, 1996b

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Hartley et al., 2002 Lewis, 1996 Morgan, 1996). Dyer (1996b) reports that Chrysler achieved$1.7Binannualsavingsthroughitssuppliersuggestionprogramandidentifieditas theirmostimportantmethodofcostreduction. Dyer (1996b) and Hartley et al. (2002) notethatChrysler uses several techniques to motivate supplier participation in its suggestion program SCORE (supplier cost reduction effort). First, Chrysler sets SCORE performance goals for each supplier and awards new business based, in part, on suppliers suggestion performance (Dyer, 1996b Hartley et al., 2002). Second,oncesuppliersachieveannualcostreductiongoals,Chryslerequitablyshares additionalsavingswiththesupplier(Dyer,1996bHartleyetal.,2002).Third,Chryslerstop management visibly support the SCORE program and vow to evaluate, approve, and implementsuppliersuggestionsinatimelymanner(Hartleyetal.,2002). Hartleyetal.(2002)identifyseveralfactorsofsupplierorganizationsthatcontributeto theirsuccessfulparticipationintheChryslerssuggestionprogram.First,successfulsuppliers tendtodesignateSCOREchampionsthatmonitortheprogressoftheirSCOREsubmission, tracktheircompanysprogresstowardSCOREgoals,andkeeptheirtopmanagersinformed about SCORE progress (Hartley et al., 2002, p. 23). In one supplying firm, the SCORE championsprimaryobjectiveistoeducatehisfirmabouttheSCOREprocessandencourage employee involvement (Hartley et al., 2002). Second, successful firsttier suppliers establishedsimilarsuggestionprogramswiththeirsuppliers,extendingthesuggestionprocess upstream albeit with limited success (Hartley et al., 2002). Third, suppliers motivate their employees to generate suggestion ideas by maintaining a sense of urgency to identify improvementopportunities,developSCOREproposals,and implementapprovedproposals (Hartleyetal.,2002,p.25).Fourth,suppliersusedavarietyoftechniques,includingkaizen

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events,productandprocessredesign,benchmarking,andproductteardowns,toidentifynew ideasforsubmission(Hartleyetal.,2002).Additionally,supplierstrackedproposalapproval onlineandmetwithChrysleremployeestoadvanceproposalstotheapprovalstage(Hartley etal.,2002). Empirical findings based on Chryslers SCORE program suggest that suppliers may serve as an important source of continuous improvement. Involved suppliers enhance their prospects for new and continued business by generating and implementing meaningful new ideaswiththebuyingfirm(Dyer,1996b).However,asupplierssuccessfulparticipationina suggestion program may require significant investment in relationshipspecific assets as supplier champions lead internal involvement and monitor suggestion status, employees acquire knowledge of the buyers products and processes, and teams brainstorm new ideas, formalizeproposals,andimplementapprovedsuggestions. 2.3.2 LogisticsIntegration A review of the interfirm logistics literature suggests that interfirm logistics integration is predominantly achieved through justintime management systems. Davy et al. (1992, p. 653)notethatthejustintimemanagementsystemsarebasedontwokeyprinciples:(1)the elimination of waste and (2) respect for and full utilization of the capabilities of people. Initially developed by line workers within the Toyota Motor Company, JIT represents a systematic effort to resolve production problems (Davy, White, Merrit, and Gritzmacher, 1992). Current conceptualizations suggest that JIT management is a multidimensional approachconsistingofthefollowingtenpractices:(1)qualitycirclestoinvolveemployeesin problemsolving and decisionmaking activities, (2) total quality control that involves all functions, employees, and suppliers in the quality effort, (3) focused factories that reduce

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organizationalandpartrelatedcomplexities,(4)totalproductivemaintenancetoestablishand refinemaintenanceandreplacementofmanufacturingequipment,(5)reducedsetuptimesto decrease time and costs associated with model changeover, (6) group technology that improvesschedulingefficienciesthroughpartfamilygroupingsandcellularmachinelayouts, (7) level scheduling to stabilize and smooth production workloads, (8) crosstrained employees, (9) pull systems that control the flow of work from upstream to downstream operations,and(10)justintimepurchasing,whichisasupplierparticipationprogramaimed at improving quality, flexibility, and service from suppliers (paraphrased from White et al., 1999,p.5,Table1). Justintime purchasing (JITP) efforts are aimed at integrating and coordinating buyers and suppliers inventory management activities such that sourced materials are supplied just they are ready for use (Gunasekaran, 1999 Kaynak, 2002). Through their support of JITP efforts, suppliers maintain a critical role in the success of a buyers JIT manufacturing initiatives (White, Pearson, and Wilson, 1999). Within the JITP approach, particular emphasis is placed on achieving delivery synchronization, which involves the continuous flow of frequent, small lot deliveries from suppliers to buyers (Gunasekaran, 1999).Throughsynchronizedflowofsourcedproduct,channelinventoriesmaybereduced, resulting in reduced space needs, material handling requirements, scrap materials, and lead times (Davy et al., 1992 Lee and Ansari, 1985). As buffer inventories are reduced or eliminated, the timely and frequent delivery of the proper quantity of defect free goods becomescriticallyimportant(Willis,Huston,andAby,1989).Thus,JITPinitiativesrequire significantcoordinationandsupportfromsuppliersfailuretodeliverthespecifiedquantityof

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defectfreepartsontimewilllikelyresultinacostlyproductionstoppagewithinthebuyers manufacturingfacility (SchonbergerandGilbert,1983WatersFuller,1995). EmpiricalresearchsubstantiatesthebenefitsattributabletoJITPpractices.Inastudy of JITP practices, Freeland (1991) found that JITP implementation resulted in significant reduction in safety stock levels and required warehouse space as well as much improved controlofinventory.InastudycontrastingJITPeffectivenessacrosssmallandlargefirms, Whiteetal.(1999)foundthatjustintimepurchasingpracticesweresignificantlyassociated with increased likelihood of improved throughput time and improved external quality for small firms only JITP practices did not significantly affect measures of operational performancewithinlargefirms.Dongetal.(2001)investigatedtherelationshipsbetweenJIT purchasing,supplierJITmanufacturing,andbuyerslogisticscosts.Resultsfromtheirstudy indicatethatbuyersperceivethattheirJITPeffortshaveapositivedirecteffectiveon(1)their suppliersadoptionofJIT manufacturingpracticesand(2)reduced logisticalcosts(Donget al., 2001). Finally, De Toni and Nassimbeni (2000) find that suppliers adoption of JIT principalsdifferentiateshighfromlowperformingfirms. Additionally, empirical findings suggest that these improvements in operational performance tend totranslate into improved firm performance for the buyer. For example, Inman and Mehra (1992) studied the relationship between JIT success and financial performance these authors found that utilization elements (equipment utilization, labor utilization,anddowntimereduction)and inventoryelements(inventoryreduction, inventory turns,workspacereduction,scrapandreworkreduction)werepositivelyassociatedwithfirm performance(Inmanand Mehra,1992). Kaynak (2002) modeledtheeffectsof internal and external JITP practices on operational and firm performance. Results fromKaynaks study

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suggest that the extent to which suppliers frequently deliver exact quantities in a timely mannerpositivelyaffectsthebuyersinventorymanagementperformance.Further,inventory performance hasapositive affectontimebased qualityperformance,which inturnbenefits thebuyingfirmsmarketandfinancialperformance(Kaynak,2002). WhileJITPliteratureconsistentlyoutlinesbenefitsforbuyers,thereislessagreement onsupplieroutcomes.PragmaticresearcherscautionthatJITPmayrequiremoderatesupplier investment in relationshipspecific assets such as proximal facilities, specialized equipment, andnewbusinessprocessestosupportmorefrequentdeliveriesofsmallerlotsizes(Waters Fuller,1995Willisetal.,1989).Additionally,morefrequenttripsimplyaconcomitantrise in packing/unpacking activities, packaging, accidents, and breakdowns additional costs bornebythesupplier(DasandGoyal,1998).Furthermore,suppliersdependentonasingle buyer may incur additional inventory costs, as a powerful buyer shifts inventory upstream (DasandGoyal,1998).Thus,suppliersmaybearadditionalsetup,holding,anddistribution costs,whilecustomersgainsignificantbenefits(Helper,1991). However,JITadvocatessuggestthatsuppliersthatadoptJITmanufacturingprinciples will benefit from JIT exchange relationships. Schonberger and Gilbert (1983) assert that, withinalongtermJITrelationship,suppliersrealizematerialcostreductionsthroughreduced inventories, administrative efficiencies stemming from limited supplier competition and infrequent contract negotiations, and improved quality through application of quality at the sourcetechniques.Similarly,Frazieretal.(1988)characterizeaneffectiveJITrelationshipas having high levels of mutual interdependence, communication, and trust. De Toni and Nassimbeni (2000) suggest that interdependence is accomplished through reciprocating specializedinvestments.ConsistentwithJITPprescriptions,suppliersspecializedinvestment

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maybeoffsetbybuyerseffortsaimedatprovidingthesupplierwithJITassistance(Dasand Goyal, 1998 De Toni and Nassimbeni, 2000). Further, effective coordination of frequent shipments may require extensive crossfunctional and interfirm communication, which serves to strengthen the relational norms that characterize the JIT relationship (Buvic and Halskau,2001DeToniandNassimbeni,2000Frazier,Spekman,andO'Neal,1988). Dong etal.(2001)empiricallyfindthatbuyersJITPprogramspositivelyaffectsuppliersadoption ofJITmanufacturingpractices,whichinturnnegativelyaffectsupplierslogisticscosts.As such,Dongetal.(2001)provideinitialsupportforthenotionthatsuppliersmaybenefitfrom JITparticipationbyinternalizingJITprinciples. Operational practices associated with JITP involve the creation of linkages between buyersandsuppliersmanufacturingoperationsinanefforttocoordinateinterfirmlogistics (DeToni andNassimbeni,2000).AccordingtotheCouncilofLogisticsManagement(1991), logistics may beconsideredas theprocessofplanning, implementing,andcontrollingthe efficientflowandstorageofgoods,services,andrelatedinformationfrompointoforiginto pointofconsumptionforthepurposeofconformingtocustomerrequirements(CLM,1991). Consistentwiththisdefinition,JITPliteraturesuggeststhatsynchronousdelivery,information sharing, and relationshipspecific assets are particularly salient factors that characterize the degreeofsuppliersinvolvementinabuyersJITPprogram (Handfield,1993). Within a JIT manufacturing system, parts are assembled in small lot sizes with the idealgoalofachievingsinglepartflow(DasandGoyal,1998Kaynak,2002).Smalllotsizes allowtightercontrolof inventory by facilitating areduction inthe numberofpartsbetween processing stages (Lee and Ansari, 1985). To avoid high channel inventories and maintain highmaterialturnover,suppliersmustsynchronizetheirdeliverywithbuyersworkstations

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rateofusage,resultinginfrequentshipmentsofsmalllotsizes(Kaynak,2002Schonberger and Gilbert,1983).As such,ontimedeliveryofexactquantities iscriticaltoeffectiveJIT management (Leeand Ansari,1985Nassimbeni,1995SchonbergerandGilbert,1983).As Kaynak (2002, p. 209) notes, delivery quantity shortages may disrupt production, while superfluous quantities result in excess inventory. Confidence in reliable delivery facilitates the reduction of buffer stocks that protect against late delivery, quantity variations, and materialdefectsinreceivedparts(WatersFuller,1995). Handfield(1993)suggeststhatinformationsharingisanecessarycomponentofJITP systemsandassertsthatbuyersmustshareaccurateforecaststofacilitatesupplierseffective capacityplanningactivities.Similarly,GermainandDroge(1997)contendthatthesharingof advanced production schedules facilitates increased knowledge of future material flows betweenbuyerandsupplier.Fullinformationexchangebetweenbuyerandsuppliermaylead to more effective JIT management information, such as schedule changes, engineering changes, quality and delivery problems or costings may facilitate higher levels of supplier responsiveness(WatersFuller,1995,p.226).WithinthecontextofJITP,Nassimbeni(1995, pp.276277)proposesaninformationsharingtypologythatconsistsofthreelevels:(1)long termorientedcommunicationsinwhichannualvolumesaredefinedwithinbroadpurchasing agreements, (2) mediumterm oriented communications that focus on coordinating master production plans, and (3) shortterm oriented communications that specify order quantities and delivery times for JIT delivery. Freeland (1991) argues that JITP requires extensive exchange of production and process information and finds that the majority of JIT buyers sampledshareproductionschedulesandqualitycontroldatawiththeirsuppliers.

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Extant research suggests that JIT relationships may require suppliers specialized investmentinpackaging,transportation,andfacilitieslocatedproximaltothebuyerinorder to support frequent, small lot deliveries of defectfree parts. Within JIT delivery systems, thereareseveralfactorsthatpromotespecializedpackaging.First,ascomparedtotraditional deliveries that allow generous tolerances on shipment quantities, JIT purchase agreements allow no such variability (Schonberger and Gilbert, 1983, p. 61). As such, specialized containerization may facilitate visualcontrolofshipmentquantities, minimizingthe needto inspect received materials (Lee and Ansari, 1985 Schonberger and Gilbert, 1983 Willis et al., 1989). Second, packaging designs that facilitate efficient transportation may not be compatible with buyers internal production systems (Witt, 2001). Therefore, design of containerization must consider optimal part presentation that promotes efficient handling within the buyers systems (Lee and Ansari, 1985 Witt, 2001). Third, specialized label formats that present human and machinereadable data may prevent misidentification and facilitateinventorymanagementsystemsthebuyersfacilities(GM,1999).Finally,frequent deliverymayencouragetheuseofdurable,returnablecontainerizationtoreducetheamount of disposable packaging and ensure the delivery of defectfree products (Lee and Ansari, 1985McGovern,1998Witt,2001). TransportationiscriticallyimportantwithinaJITmanagementsystem.JITPsystems are based on the frequent delivery of small lot shipments in accordance with the buyers changing production schedule (Kaynak, 2002). Without consistent ontime performance, channelinventoriesmaynotbereduced(SchonbergerandGilbert,1983).Transportationmay befurthercomplicatedbytheneedtoschedulemixedloadsofsmalllotsizesacrossseveral distant suppliers to reduce transportation costs (Lee and Ansari, 1985 Schonberger and

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Gilbert, 1983 WatersFuller, 1995). The complexities associated with frequent, small lot deliveries and returnable packaging combined with the criticality of timely delivery within narrowdeliverywindowssuggesttheneedforclosershippercarrierrelationships(Frazieret al., 1988 Gentry, 1996 Kaynak, 2002). Gentry (1996) finds that closer shippercarrier relationships,characterizedbylongtermcommitments,frequentcommunication,continuous improvement, joint problem solving, and high levels of responsiveness, are positively associated with the JIT delivery. Her results suggest that collaborative carriers invest in proximal facilities, specialized equipment, new routes, and improved consolidation procedures that decrease transit time facilitating better delivery service (Gentry, 1996). Further,withinthecontextofalongtermrelationship,carriersprovidemorededicatedassets andaremoreresponsivetoshipperstracingrequests.Insum,priorresearchsuggeststhat,as firmsreducechannelinventoryanddeliverylotsizes,shippersmayincreasethesizeoftheir internalfleetorseekclosecarrierrelationshipstoachievehighlevelsofdeliverycoordination withinaJITrelationship(Kaynak,2002WatersFuller,1995). AccordingtoGunasekaran(1999,p.78),JITpurchasingpracticesarecharacterizedby a proximally located supply base that frequently delivers small lot shipments. By reducing distance between buyer and supplier and focusing small lot deliveries, replenishment lead times andsubsequently material intransit inventories may bereduced(Gunasekaran,1999). GermainandDroge(1997,p.619)likenproximallylocatedsupplierstoaninterfirmcellular manufacturingsystemandsuggestthatgeographicproximityand frequentdeliverypromote crossfirm workflow, ultimately resulting in reduced means and variances for interfirm delivery cycles. In a study of JIT purchasing, Freeland (1991) finds support for this view citingthat43%ofsurveyrespondentsfeltimpairedbythedistancebetweenthesupplierand

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theirownmanufacturingfacility.LeeandAnsari(1985)suggestthat,whenadequatelocal supply is unavailable, buyers may motivate suppliers to move operations closer to their manufacturing facilities by offering longterm contracts. Alternately, WatersFuller (1995) and Handfield (1993) suggest a secondary approach in which interfirm coordination is achieved by interposing a warehouse between the buyers and suppliers manufacturing operations. Dyer (1996c) provides additional insights by contrasting the assembly network configurationsofU.S.andJapaneseassemblyplants.FindingssuggestthatJapanesenetwork configurations exhibit greater geographic concentration, allowing faster delivery cycles, greaterfacetofacecommunication,andinformationsharingacrossfirms(Dyer,1996c). 2.3.3 SupplierNewProductInvolvement Severalstudiessuggestthatthenewproductdevelopmentprocessrepresentsakeysourceofa manufacturing firms competitive advantage (Brown and Eisenhardt, 1995 Clark and Fujimoto,1991Hartley,Zirger,andKamath,1997).Intheirstudyoftheglobalautomotive industry, Clark and Fujimoto (1991) assertthat new product development (NPD) strategies, suchasheavyweightprojectmanagement,concurrentengineering,andsupplierinvolvement, may significantly affect internal and external product integrity, development lead time, and ultimatelymarketshare.Theimportanceofnewproductdevelopmentisfurtherunderscored byclaimsthatupto80%ofthefinalcostofanewproductislockedinduringtheconceptand design stages of the NPD process (Handfield et al., 1999, p. 63) and that competition in several industries is shifting to a time basis where first movers glean market advantage (Hartley,Zirger,andKamath,1997). Currentbusinesstrendssuggesttheincreasedinvolvementofsuppliersinbuyersnew productdevelopmentprocesses.Increasingly,firmsareparingextraneousbusinessesinorder

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to focus on core capabilities, outsourcing activities traditionally performed internally (Bonaccorsi and Lipparini, 1994 McIvor and Humphreys, 2004 Ragatz, Handfield, and Scannell,1997).Assuch,firmsareseekingtoincorporatesupplierknowhowandexpertise intodesignandmanufacturingactivitiesonceperformedinhouse(Ragatzetal.,1997Swink, 1999). Intuitively, supplier integration into the buyers new product development process suggests several benefits. In the planning stages, early supplier involvement facilitates the sharingandalignmentoftechnicaldevelopmentstrategiesbetweenbuyersandsuppliers(van derValkandWynstra,2005).Asaresultoftheseactivities,suppliersmayprovideadvanced technologiestobuyers,allowingbuyerstoofferdistinctiveproductsthathaveuniquefeatures. Similarly,duringtheconceptionanddesignstagesofNPD,supplierknowhowmayfacilitate the development of novel designs that meet cost objectives (Liker et al., 1996) while consideringtheconstraintsofprocesstechnology (Hartley,Zirger,andKamath,1997). Bonaccorsi and Lipparini (1994) suggest that reduced development costs, improved product quality, and reduced time to market may be achieved through early supplier involvement in the buyers NPD process. Through early involvement, suppliers may assimilatecustomer needssooner,allowing supplierstobegintheNPDprocessatanearlier moment in time. Early involvement allows suppliers to provide prototypes earlier, incorporate comprehensive test data into design requirements, and suggest design specifications that incorporate standardized rather than customized parts (Bonaccorsi and Lipparini, 1994). In addition, early involvement allows suppliers to generate alternative technical proposals such that costbenefit analysis may be conducted over a wider range of designoptions(BonaccorsiandLipparini,1994).Throughconcurrentengineering,involved suppliers may consider internal manufacturing capabilities during product specification

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developmenttoensurecompatibilitywithexistingmanufacturingcapabilities(Bonaccorsi and Lipparini, 1994 Hartley, Meredith, McCutcheon, and Kamath, 1997). This may reduce requirementsforfutureinvestmentsinproductionequipmentandfutureengineeringchanges thataredrivenbymismatchesinproducttolerancesandmachinecapabilities(Bonaccorsi and Lipparini,1994). Toalargeextent,priorresearchhasdemonstratedthebeneficialoutcomesassociated with supplier involvement. For example, empirical studies have found that supplier involvementispositivelyassociatedwithdesignquality(ClarkandFujimoto,1991Petersen et al., 2005 Ragatz, Handfield, and Petersen, 2002), new product manufacturability (Bonaccorsiand Lipparini, 1994 Liker et al., 1998 Swink, 1999 Wastiand Liker, 1997), product quality (Primo and Admundson, 2002), time to market (Bonaccorsi and Lipparini, 1994Clark,1989GuptaandSouder,1998Ragatzetal.,2002),productcost(Ragatzetal., 2002), buyersupplier relationship satisfaction (Stump et al., 2002), and firm performance (Petersenetal.,2005).Additionally,researchhasshownthatboththebuyerandthesupplier benefitfromsupplierintegrationintheNPDprocess(WastiandLiker,1997).Collectively, conclusions drawn from these findings suggest that greater levels of supplier involvement leadtohigherlevelsofperformance. Itisimportanttonote,however,findingsfromseveralempiricalstudiesindicatethat supplier involvement does not always lead to positive outcomes. Primo and Admundson (2002) studied the effects of supplier obstructionism a condition in which a powerful supplierintroducesdelaysintotheNPDprocess.Whileresultsdonotsupportthehypothesis that dependence on an uncooperative supplier slows the pace of new product development, theauthorssuggestthatlackofsignificantassociations may beattributabletolowstatistical

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power(Primoand Admundson,2002,p.45).However, findings fromHartleyetal.(1997) may offer further insight into this relationship. In their crossindustry study of supplier involvement in buyers NPD, Hartley et al. (1997) conclude that the percent of suppliers activitiescompletedontimeisnegativelyrelatedtooveralldelayinthebuyersNPDproject. Thus,resultsfromthislatterstudyimplythattheextensiveinvolvementofanuncooperative supplierintheNPDprocessmaydelayNPDprojectcompletion. The study of the relationship between technological uncertainty and supplier involvement has lead to conflicting findings. In the highvelocity computer industry, Eisenhardt and Tabrizi (1995) found that greater supplier involvement resulted in longer productdevelopmentcycles. While notstatisticallyconclusive, followup analysissuggests that supplier involvement may be more effective when applied to stable technologies in mature markets as compared to products characterized by high levels of uncertainly (Eisenhardt and Tabrizi, 1995). Thus, contingency approaches to the study of supplier involvementsuggestthattechnologicaluncertaintyrenderssupplier involvementefforts less effectivewhenconsideringtimetomarket. Despite the findings of Eisenhardt and Tabrizi (1995), recent studies generally conclude that higher levels of technological uncertainty encourage greater supplier involvement.PrimoandAdmundson(2002)foundthattechnicaldifficulty,i.e.,thedegreeto which NPD requires radical innovation, is positively related to the extent of supplier involvement.Petersenetal.(2003)foundthatwhiletechnologicaluncertaintyhasnodirect effectonprojectoutcomes,uncertaintypositivelyandindirectlyaffectsoutcomesatisfaction throughincreasedtechnologyandcostsharingactivitiesandgreatersupplier involvement in decisionmaking. In addition, findings from Ragatz et al. (2002) suggest that (1)

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technologicaluncertainty is negativelyrelatedtoprojectcostperformanceand(2)theeffect oftechnologicaluncertaintyoncost,quality,andcycletimeperformanceismediatedthrough theuseoftechnologyandinformationsharingpractices.Finally,WastiandLiker(1997)find strong support for the positive relationship between technology uncertainty and supplier involvement they conclude that supplier involvement allows the buyer to tap into the suppliers experience and abilities when dealing with complex and rapidly changing component without having to risk further resources to conduct development inhouse (p. 351).Inaggregate,thesestudiessuggestthatsupplierinvolvementiscommonlyusedtocope withhighlevelsofNPDuncertaintyhowever,asEisenhardtandTabrizi(1995)suggest,this strategymayresultinprolongedNPDcycletimes. Furtherinsightintothesupplierinvolvementphenomenonmaybegainedbyexploring specific supplier involvement activities. Adapting the definition of supplier integration developed by Petersen et al. (2005, p. 379), supplier involvement is defined as the participationofanexternalsupplierinthedecisionmakingprocessesforpurchaseditemsor servicesthatareincorporatedintothenewendproduct/serviceparticipationmayrangefrom informationsharingactivitiestodirectinvolvementintheNPDdecisionmakingprocessand mayoccurwithinanystageofproduct/servicedevelopment.Consistentwiththisdefinition, supplier involvement may be assessed in terms of the extent of involvement, timing of involvement,ornatureofthedesignrelationship. The extent of supplier involvement may be viewed in terms of the extent of the suppliers design responsibility or level of influence. Building on the work of Clark and Fujimoto(1991),Petersenetal.(2005,p.378,paraphrasedfromFigure3)depictacontinuum of increasing design responsibility as represented by four typologies: (1) no involvement

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supplierbuildstoprint,(2)whiteboxinformalintegrationinwhichthebuyerconsultswith supplieronbuyersdesign,(3)grayboxformalizedsupplierintegrationevidencedbyjoint development activity between buyer and supplier, and (4) black box design is primarily supplier driven based upon buyers functional specifications. While white box design involvement constitutes little buyersupplier integration, black box integration implies maximal buyersupplieradaptationand informationsharingpractices(Petersenetal.,2005). This conceptualization of the extent of supplier design responsibility is generally consistent across several studies of supplier involvement (Birou and Fawcett, 1994 Cusumano and Takeishi, 1991 Liker et al., 1998 Liker et al., 1996 McIvor and Humphreys, 2004 Wasti andLiker,1997). TimingreferstothespecificstageoftheNPDprocessinwhichthesupplierinitiates involvement.Conceptually,theNPDprocessisviewedasconsistingofasetofserialphases (Petersen et al., 2005, p. 377, paraphrased from Figure 2): (1) idea generation a process driven by the voice of the customer, (2) preliminary business and technical assessment, (3) product/process/service concept development, (4) product/process/service engineering and testing,and(5)prototypebuildandtestandpilotrampupforoperations.Uponrampup,the newproduct/serviceenters fullscaleproduction. Empirically,timing has been measuredas the number of months prior to product launch that a supplier was selected (Cusumano and Takeishi, 1991), percent of endproduct design completed before supplier became involved (Liker et al., 1996), stage of involvement (Birou and Fawcett, 1994 Bonaccorsi and Lipparini, 1994 Cusumano and Takeishi, 1991 Eisenhardt and Tabrizi, 1995 McIvor and Humphreys,2004Petersenetal.,2005),andextentofinvolvementwithineachdevelopment stage (Wasti and Liker, 1997). Consistent with portfolio theory, McGinnis and Vollapra

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(1999) assert that successful firms involve suppliers when needed, in accordance with the buyerssituation. The design relationship between buyer and supplier characterizes the natureof early involvement.Factors,suchasbuyersuppliercommunicationandsuppliersparticipationon buyersdesignteam,havebeenconsideredinpriorresearch.WastiandLiker(1997)argue thatcommunicationofdesignrelated informationbetween buyerandsupplier isparticularly criticalduringearlydesignstagestogainfamiliaritywithcustomerrequirementsandfacilitate joint problem solving. To facilitate timely, frequent communications, supplier firms may assign guest engineers to their customers facility during the NPD process (Hartley, Zirger, and Kamath, 1997 Kamath and Liker, 1994). McIvor and Humphreys (2004) find that suppliersandtheir majorcustomerexchangeseveraltypesof informationduringthedesign process, including: technical, process capability, cycle time, market information. Supplier participation in the buyers NPD team facilitates bilateral information flow and supplier involvementinthedecisionmakingprocess(Ragatzetal.,2002).Priorresearchsuggeststhat supplierinvolvementindesignrelateddecisionsiscriticaltotheachievementofNPDproject goals team participation facilitates timely status updates and allows suppliers to influence decisions related to their involvement (Liker et al., 1998 Petersen, Handfield, and Ragatz, 2003). A developing body of conceptual research suggests the importance of sharing technology plans through the development of joint technology roadmaps. Independent of specificNPDprojects,buyerandsuppliersmaydiscloselongtermtechnologyplansinorder to achieve future technology alignment. Identified as a strategic management tool, technology roadmaps identify longterm technology trends for both the buyer and supplier

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andservetoprovideabasis for futureresearchanddevelopment investments(vanderValk and Wynstra, 2005 Wynstra, van Weele, and Weggeman, 2001). Through this process, buyers may influence the direction of suppliers development efforts such that future technologiesarecompatible(Ragatzetal.,1997).Handfieldetal.(1999,pp.7576)present twoscenariosinwhichfirmsmaysharetechnologyroadmaps.Inthefirstexample,abuying firmmaysecretlyshareitstechnologytrajectorywithatrustedsupplierwithinthecontextofa larger collaborative agreement. In the second scenario, a buyer openly shares future technology plans in an attempt to identify qualified suppliers that can provide required technologies at targeted prices. While the former approach may be suited for mature industries,thelatterstrategymaybeparticularlyapplicablewithinvolatileindustries. 2.4 OrganizationalCompetence

Supply management literature suggeststhatorganizational competence is a precondition for the development of effective buyersupplier relationships. Successful implementation of supply managementpractices,suchas supplierselection,negotiation,costmanagement,and supplierdevelopmentrequirespurchasingcompetence.Further,extantliteraturesuggeststhat suppliersmustpossessbaselinecompetenciesinordertowarrantbuyerscollaborativesupply managementefforts. 2.4.1 BuyerCompetence In a successful joint buyersupplier initiative, the buying firm may leverage its technical competence in order to achieve joint goals. Technical capabilities, such as inter organizational communication skills, process and product design knowledge, and ability to collaborate in crossfunctional teams, may be particularly salient in the pursuit of supplier improvement. Krause (1999) suggeststhat interorganizational communication is critical to

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supplier development efforts. Lascelles and Dale (1989) notethat effective communication involves twoway interaction, emphasizing that buying firms must systematically solicit feedbackfromtheirsuppliers.Giunipero(1990)foundthatfrequencyandtheextenttowhich the communication is personal and genuine influence the effectiveness of interfirm communication. In assessing the buying firms interfirm communication skills, Krause (1999)consideredcommunicationfrequency,openness,andnormsasimportantattributes. CarterandEllram(1994)positthatsupplierqualityimprovementeffortsrequireboth product design and process capabilities. Product design skills are needed to effectively review suppliers product designs with the intention of optimizing configurations and tolerances.Conversely,manufacturingsystemsknowledgemaybeusedtoassessasuppliers ability to manufacture a particular design. For example, the buying firm may engage in process capability analysis, which focuses on the ability of the supplier to repeatedly manufacture products within the specified tolerances and at the lowest possible cost. In a reviewofsupplierdevelopmenttechniquesusedbyU.S.automakers,ChoiandHartley(1996) note that automotive OEMs commonly pursue processrelated improvements that involve workplace organization, manufacturing system layout modifications, errorproofing system design, and quick die changes in an effort to improve supplier performance. Similarly, Handfieldetal.(2000)reportthatHyundaisupplierdevelopmentengineersregularlyengage intime/motionstudiesandprocesslayoutredesign.Insum,inordertotrainsuppliersorlead improvementeffortswithinthesuppliersfacility,thebuyingfirmmustpossesstherequisite productandprocessdesigncapabilitiestobeeffective. Joint buyersupplier effort may require the involvement of multiple technical specialistsfromboththebuyingandsupplyingfirms.Consequently,theabilityofthebuying

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firmtocollaborateonaninterorganizationalcrossfunctionalteammayaffecttheoutcomeof ajointimprovementeffort.Toleadtheimplementationofaprocessimprovementinitiative, the buying firm may allocate maintenance engineers as well as logistics, procurement, manufacturing, and quality experts to the crossfunctional team (Handfield et al., 2000). CarterandEllram(1994)suggestthattheparticipationofthebuyingfirminsupplierquality improvement is a complex issue due to the difficulty in coordinating the efforts of various functionalareaswithinboththebuyingandsupplyingfirms.Krauseetal.(1998)foundthat firms followingastrategicapproachtosupplierdevelopmenttendtoutilizecrossfunctional teams to a greater extentthan firms pursuing a reactive approach. In particular,their study finds that firms using a strategic approach often used preestablished, dedicated, and separately funded crossfunctional teams to improve the overall performance of the supply base(p.48).Krauseetal.(1998)concludethattheuseofcrossfunctionalteamsmaybea necessary,butinsufficientconditiontodevelopaworldclasssupplybase. 2.4.2 SupplierCompetence The buying firms perception of supplier competence may also influence the buying firms proclivitytoinitiatejointeffortwithasupplier.AsnotedbyMonczkaetal.(1993),suppliers lackingcorecapabilitiesmaynotqualifyforbuyerassistance.Inthiscase,theeffortrequired by the buying firm to improve the suppliers performance to a worldclass standard is too great,intermsoftimeand/orcost.Hence,thesuppliermustpossessasufficientfoundation to render a buying firms development effort successful(MacDuffie and Helper, 1997). In addition, competent suppliers may have less difficulty sustaining performance improvement withouttheinvolvementofthebuyingfirm(ChoiandHartley,1996).Assuch,Bensaouand

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Anderson (1999) argue that buying firms are more likely to invest in relationshipspecific assetswithsuppliersthatpossesssuperiorassets,skills,andcapabilities.

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CHAPTER3 MODELDEVELOPMENT
ConsistentwiththeresearchquestionslistedinChapter1,thecentralthrustofthisstudyisto empiricallyvalidatetheassertionsof supplierportfoliomanagementtheorybyinvestigatinga singlebuyingfirmsportfolioofsupplyrelationships.Towardthisgoal,thischapterproposes thestudyof relatedempiricalmodelsthat(1)developandvalidatebuyersupplierrelationship closenessasasecondorderlatentconstruct,(2)testthecausal relationshipsbetweenstrategic importance of the buyersupplier relationship, use of integrative and distributive supply managementpractices,andbuyersupplierrelationshipcloseness,(3)assessthedistributionof close relationships across sets (or clusters) of supply relationships within a buying firms relationship portfolio, and (4) explore the differences in antecedents and consequences of relationship closeness across sets of supply relationships within a buying firms supplier relationship portfolio. Toward these goals, 3.1 advances a multidimensional model of buyersupplier relationship closeness that is comprised of six relational elements: trust, commitment, shared benefit, flexibility, information sharing, and solidarity. 3.2 suggests thattheuseofparticularsupplymanagementpracticesvariesinaccordancewithprescriptions derived from supplier portfolio management theory. In particular, this section advances a causal model which posits that a buying firms use of integrative and distributive supply management practices are dependent upon the strategic importance of the exchange relationshipandthattheuseofintegrativeanddistributivesupplymanagementstrategieshas differential effects on buyersupplier relationship closeness. 3.3 explores the notion that a focal buyer simultaneously manages a portfolio of supplier relationships, characterized by varying degrees of closeness. This section proposes the empirical derivation of supplier

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relationship clusters across a single buying firms supplier relationship portfolio using dimensions of buyersupplier relationship closeness as clustering criteria. Finally, 3.4 analyzes the extent to which supply management practices and operational benefits differ acrossempiricallyderivedsupplierrelationshipclusters. 3.1 BuyerSupplierRelationshipClosenessFactorModel

Developments in transaction cost economic and relational exchange theory suggest that buyersupplier relationship closeness is a multidimensional construct that characterizes buyers and suppliers perceptions of the intensity of the relational norms that characterize exchange relationships. While there are many possible relational norms that may be considered, extant research suggests that trust, commitment, shared benefit, flexibility, informationexchange,andsolidarityrepresentcriticalrelationalnormsthatarecentraltothe buyersupplierrelationshipclosenessconstruct.Assuch,thisresearchdefinesbuyersupplier relationship closeness in terms of the aforementioned relational norms and subsequently modelsbuyersupplierrelationshipclosenessasasecondorderconstruct,consistingofthesix aforementionedfirstorderconstructs. 3.1.1 Trust Areviewofbuyersupplierrelationshipliteraturesuggeststhatinterfirmtrustisessentialto the development of close buyersupplier relationships. Dyer and Chu (2003, p. 62) define trustastheextenttowhichonepartytrusts theothernottobehaveopportunistically.Using data from the international automotive industry, Dyer and colleagues conclude that (1) Japanese automakers develop trusting relationships with their strategic suppliers, whereas U.S.automakerstendtomaintainrelationshipscharacterizedbylowlevelsoftrustregardless of relationship importance (Dyer, 1996a Dyer et al., 1998), (2) the length of the buyer

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supplierrelationship,thecontinuityofthebuyersupplierrelationship,andtheextenttowhich automakersprovidedirectassistancetotheirsuppliersarekeydeterminantsofsupplierstrust intheautomakers(DyerandChu,2000),and(3)supplierstrustinautomakersisnegatively related to ex post transaction costs and positively related to suppliers willingness to share confidentialinformationwithanautomaker(DyerandChu,2003). In their study of the U.S. property and casualty insurance industry, Zaheer and Venkatraman(1995)findthattrustispositivelyassociatedwithquasiintegrationtheauthors concludethattheroleoftrustinabuyersupplierrelationshipsupportsarelationalexchange perspective higher levels of trust are associated with closer relationships. Mohr and Spekman (1994, p. 38) contend thattrust allows exchange partners to better manage stress, adapt to a changing exchange environment, and share information across firm boundaries. Using survey response data from the personal computer industry to test their hypotheses, Mohr and Spekman (1994) find that more successful partnerships exhibit higher levels of trust. Intheirmodelofsupplieralliancedevelopment,McCutcheonandStuart(2000)assert thattheextentof mutualtrustbetween buyerandsupplier istheprimarydeterminantofthe feasibilityofanalliancepartnership.AccordingtoMcCutcheonandStuart(2000),trustplays a trivial role in armslength relationships, which rely on legal recourse toresolve interfirm disagreement.However,inthecaseofcloseinterfirmrelationships,whereitisinfeasiblefor contractstocompletelysafeguardexchange,firmsrelyontrusttomitigaterisksthatmaystem from an exchange partners opportunistic behavior. Using case study methodology, McCutcheon and Stuart(2000) identify several factorsthat fosterthe development of inter firmtrust:(1)suppliersviewsofbenefitsthatmaybeobtainedthroughthedevelopmentofa closer relationship, (2) avoidance of the use of coercive power and hostages, (3) history of

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interactions with positive outcomes, and (4) buyers and suppliers pursuit of trustbuilding actions. 3.1.2 Commitment The model of pledges and commitments, as developed by Anderson and Weitz (1992), underscores the importance of commitment in the development of interfirm relationships. AccordingtoAndersonandWeitz(1992,p.19),commitmentmaybedefinedasonepartys desiretodevelopastablerelationship,willingnesstomakeshorttermsacrificestomaintain the relationship, and confidence in the stability of the relationship. Using matched dyad survey response data from branchlevel channel relationships of several Fortune 500 corporations, Anderson and Weitz (1992) conclude that one partys commitment to a relationshipispositivelyrelatedtothatpartysperceptionofitspartnerscommitmenttothe relationship. Modeled as a closedloop cycle, Anderson and Weitz (1992) empirically validateaprocessinwhichinterfirmcommitmentgrowsthroughreciprocatingactions.Ina studyofsupplierdevelopmentadoption,Krause(1999)similarlyexaminestheroleofsupplier commitment.UsingsurveydatafromacrosssectionofhighlevelU.S.purchasingmanagers, Krause (1999) finds that buying firms orientation toward suppliers is positively related to buyers perceptions of supplier commitment, which in turn, are positively related to buying firms adoptionofdirectsupplierdevelopmentactivities. Additionally,MohrandSpekman (1994) find that successful interfirm partnerships are characterized by higher levels of commitment.

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3.1.3 SharedBenefit In his study of buyersupplier partnerships, Stuart (1993) suggests that the degree of partnership between buying and supplying firms may be gauged by: (1) extent of shared benefit and (2) extent of joint problem solving. Stuart (1993, p. 25) affirmed that a true partnership must yield a perceived balance of shared benefits as opposedto a powerbased, unilateral capturing of benefits. Using response data from 240 industrial purchasing managers,Stuart(1993)findsthattheextenttowhichbuyerssharebenefitswithsuppliersis positivelycorrelatedwithshorttermandlongtermperformanceadvantagesforthebuyer. In their study of interorganizational relationships within the U.S. and Japanese automotive industries, Bensaou and Venkatraman (1995) identify shared benefit as an importantdimensionofthesociopoliticalprocessesthatunderlieinterfirmrelationships.In particular, Bensaou and Venkatraman (1995, p. 1475) posit that shared benefit, in part, influences the extent to which information is freely exchanged between parties to a relationship. Statistical analysis suggests that shared benefit significantly differs across buyersupplierrelationshipconfigurations. 3.1.4 Flexibility Flexibility refers to the expectation of willingness to make adaptations as circumstances change(HeideandJohn,1992,p.35).Asadvanced byHeide andJohn(1992),flexibility normsfacilitateinterfirmcoordinationinanuncertainenvironmentbyinsuringthatpartiesto an exchange will make good faith efforts to modify the relationship in concert with environmental circumstances such that neither party is held to detrimental practices. In a series of related studies based on crossindustry matched dyad survey response data, Heide and colleagues find that flexibility is positively related to bilateral interfirm dependence

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(Heide, 1994), degree of product customization (Heide, 1994), annual purchase volume (Heide,1994),andrelationshipcontinuity(HeideandMiner,1992),andnegativelyrelatedto unilateral interfirm dependence (Heide, 1994), buyers use of automation in its manufacturing operation (Heide, 1994), and length of prior relationship (Heide and Miner, 1992). In a subsequent study, Johnston et al. (2004) examined several antecedents and consequences of flexibility. Using survey response data from Canadian buyers and their matched suppliers, Johnston et al. (2004) find that supplier trust, measured as suppliers perceptions of buyers benevolence and dependability, positively affects flexibility. Furthermore, the same study concludes that flexibility is a significant predictor of buyers perceptions of relationship performance and buyers satisfaction with the exchange relationship. 3.1.5 InformationSharing Informationsharing may bedefinedasthe expectationthatpartieswillproactivelyprovide informationusefultothepartnerand,assuch,reducesanexchangepartnersvulnerabilityto unforeseeninformation(HeideandJohn,1992,p.35).CannonandPerreault(1999,p.441) contend that open information sharing is characterized by the exchange of important and sensitive information their research argues that interfirm activities, such as supplier involvementinnewproductdesign,coststructureanalysis,negotiation,technologyroadmap discussions,andlogisticsintegrationmaybenefitfromtheopendisclosureofinformation.In theirstudiesoftheautomotiveindustry,Dyerandcolleaguesfindthat:(1)Japanesepartner suppliers tend to share confidential information and cost data with their OEM customers whereasU.S.automakersupplierrelationshipsarecharacterizedbyrelativelylowerlevelsof dataexchange,regardlessoftheimportanceoftherelationship(Dyer,1996a,1996cDyeret

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al., 1998) and (2) suppliers trust in an automaker is positively related to the suppliers willingnesstoshareconfidentialinformationwiththeautomaker(DyerandChu,2003). Additional studies examine the role of rich communication within a buyersupplier relationship. Anderson and Weitz (1992) argue that information exchange is essential to interfirm coordination and find that open, frequent, twoway communication is positively related to interfirm commitment. Similarly, Chen et al. (2004) assertthatthe exchange of confidential information isessentialtoeffective supplychain integration.Empirical studies suggest that information exchange and open communication are positively related to higher levels of customer responsiveness (Chen, Paulraj, and Lado, 2004), adoption of supplier development activities (Krause, 1999), JIT purchasing (Dong et al., 2001 Freeland, 1991), and ontime completion of joint new product development (Hartley, Zirger, and Kamath, 1997). 3.1.6 Solidarity HeideandJohn(1992,p.36)definesolidarityasabilateralexpectationthatahighvalueis placedontherelationshipandassertthatsolidarityisessentialtothemaintenanceofaclose relationship.Intheirstudyofrelationalexchange,HeideandJohn(1992)suggestsolidarity, flexibility and information exchange comprise a multidimensional measure of relational norms and find that relational norms, in conjunction with transactionspecific investment, allow buyers to exert external control over their suppliers internal decisionmaking processes. Griffith et al. (2006) employ a similar approach to the study of buyersupplier relationshipsanddefinerelationalbehaviorintermsofflexibility,informationexchange,and solidarity the authors find that procedural justice (extent of fair treatment) and distributive

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justice (extent of each partys contributions and rewards) positively influence relational behavior. 3.1.7 MultiDimensionalModelofBuyerSupplierRelationshipCloseness Several studies of buyersupplierrelationshipswithinthe marketing literaturehave modeled buyersupplierrelationshipsasmultidimensionalsecondorderfactors. Rootedintransaction costeconomictheory,Noordewieretal.(1990)studiedthemoderatingeffectsofuncertainty on the relationship between relationalism and purchasing performance. In their study, Noordewier et al. (1990) defined relationalism, or relational syndrome, in terms of five elements:supplierflexibility,supplierassistances,suppliermonitoring,informationsharing, and expectations of continuity. In a later study of external buyer control, Heide and John (1992) defined relational norms as a secondorder factor consisting of the following first orderfactors:flexibility, information exchange,and solidarityand foundthatthe interaction ofrelationalnormsandbuyersinvestmentinrelationshipspecificassetsispositivelyrelated tobuyersabilitytoinfluencesupplierdecisions. More recently, studies within the realm of operations and supply chain management have adopted a multidimensional view of buyersupplier relationships. Most recently, Griffith et al. (2006) studied the effects of distributive and procedural justice policies on relational behavior and modeled relational behavior as a multidimensional firstorder construct that includes measures of flexibility, information sharing and solidarity. In their study of the automotive industry, Prahinski and Benton (2004) define buyersupplier relationshipasasecondorderconstructthatconsistsofthreefirstorderfactors:buyerfirms commitment, cooperation, and operational linkages. Prahinski and Benton (2004) conclude that buyersupplier relationship mediates the relationship between select communication

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strategies and supplier performance. In related studies, Benton and Maloni (2000, 2005) arguethatrelationship strength isa multidimensionalconstructconsistingof fiveelements: commitment,conflict,conflictresolution,cooperation,andtrust. Building on the developments of prior research, this study conceptualizes buyer supplier relationship closeness as a secondorder construct, which consists of the following firstorder dimensions: trust, commitment, shared benefit, flexibility, information exchange, and solidarity. The nomological validity of buyersupplier relationship closeness construct may be assessed by exploring the relationship between this construct and suppliers perceptions of the goodness of the buyersupplier relationship. Figure 3.1 depicts buyer supplierrelationshipclosenessasamultidimensional,secondorderconstructandproposesa positiverelationshipbetweenbuyersupplierrelationshipclosenessandrelationshipgoodness. Thesetheoreticalrelationshipsareformalizedinthefollowinghypotheses:

H1:

Buyersupplier relationship closeness can be modeled as a secondorder latent construct, consisting of the following six elements: (a) trust, (b) commitment, (c) sharedbenefit,(d) flexibility,(e)informationexchange,and(f)solidarity.

H2:

Buyersupplierrelationshipclosenessispositivelyrelatedtosuppliersperceptionof thegoodnessoftheoverallrelationship.

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Figure3.1: Multidimensionalmodelofbuyersupplierrelationshipcloseness

Relationship Closeness Shared Benefit Flexibility

Relationship Goodness

Trust

Information Sharing Commitment Solidarity

3.2

BuyerSupplierRelationshipClosenessCausalModel

Exchangetheorysuggeststhatsupplymanagementactivitiesdifferintheextenttowhichthey represent credible commitment to an exchange partner versus the level of threat that a particularsupplymanagementactivitymayimpose.Williamson(1983,p.319)differentiates between a credible commitment and credible threat by noting that the former involves reciprocal acts designed to safeguard a relationship, while the latter are unilateral efforts to preempt advantage. Adopting the spirit of Williamsons (1983, 1985) arguments, this research posits that buyers signaltheir commitment to a relationship by pursing integrative and/or distributive supply management strategies. Whereas the adoption of integrative activitiesbybuyersfacilitatestheformationof closebuyersupplierrelationships,distributive tacticshinderthedevelopmentofcollaborativeinterfirmnorms. Integrative and distributive activities may be distinguished on the basis of asset specificity. Activitiesthat involve high levelsoftransactionspecific investment intangible

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and/or intangible assets serve to signal credible commitment to an exchange partner. Investmentsinspecializedequipmentorknowledgemayenhanceproductivitywithinafocal relationship,butmayotherwiserepresentasunkcost,wherebytheinabilitytofullyutilizea specialized investment within another interfirm relationship renders the asset less valuable. As such, transactionspecific assets may be viewed as selfimposed exit barriers that providegreaterincentivefortheinvestortoliveuptoitspromises(BensaouandAnderson, 1999,p.463).Fromtheperspectiveofanexchangepartner,relationshipspecificinvestment may validate the intention of the investor to seek a closer, collaborative relationship and inspire reciprocating commitment to the development of a strong interfirm relationship (Anderson and Weitz, 1992 Dyer and Chu, 2003). Thus, reciprocal investments in transactionspecificassetsmayfacilitatethedevelopmentofbilateral,collaborativerelational norms. Conversely,distributivesupplymanagementactivitiesinvolverelativelylowlevelsof investment in transactionspecific investment. The absence of specialized assets infers low switching costs and little loyalty between parties to anexchange. Assuming thick markets, i.e.,ampleavailabilityofalternatesourcesofexchange,theabsenceofsubstantialswitching costs permits buyers and sellers to seek new sources of supply and consumption under beneficial trading terms. Using distributive tactics, exchange partners may leverage market basedforcestoimposecrediblethreatsthatfacilitatefavorableexchangeconditions.Assuch, distributiveactivitiesarelargelyaimedatthemaximizationofunilateralgainsandmayserve tohinderthedevelopmentofstrongbuyersupplierrelationships. Within the context of supplier portfolio management theory, integrative and distributivesupplymanagementactivitiesmayserveasthemechanismsthrough whichbuyers

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establishaportfolioofsupplierrelationshipsthatrangeincloseness.AssuggestedbyKrause et al. (2000), buyers may simultaneously pursue multiple types of supply management activities within a particular supply relationship. Krause et al. (2000) note that supply management activities may be used individually or in combination in order to improve supplierperformance.Asanexample,Krauseetal.(2000,p.37)citetheJapanesekeiretsu, whichsimultaneouslyusesbothcompetitionacrossa limited numberofsuppliersanddirect assistance to motivate and help suppliers improve their performance. By extension, this research posits that a buying firm may pursue a distinctive recipe of integrative and distributivesupplymanagementactivitieswitheachsupplierinitssupplybase.Pendingthe supplymanagementactivitiesthatconstitutetherecipe,closerormoredistantbuyersupplier relationships will develop. As such, this research posits that a buyers differential implementationofintegrativeanddistributivesupplymanagementactivitiesacrossitssupply basegivesrisetoaportfolioofrelationshipsthatvaryintermsofbuyersuppliercloseness. To gain further insights into the differential effects of integrative and distributive approaches, this study advances a causal model of buyersupplier relationship closeness. Figure3.2presentsatwostagecausalmodelinthefirststage,thestrategicimportanceofthe supplierrelationship ispositedtoaffectbuyersuseof integrativeand/ordistributivesupply managementpractices.Thesecondstageofthemodelsuggeststhatbuyersuseofintegrative and distributive supply management activities has differential effects on buyersupplier relationshipcloseness. Thefollowingsubsectionssupportthetheoreticaldevelopmentofthe causalmodelofbuyersupplierrelationshipcloseness.3.2.1and3.2.2developconstructs and hypotheses involving integrative and distributive interfirm activities, respectively. In

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3.2.3, the hypothesized linkages between the strategic importance of the buyersupplier relationship,integrativestrategies,anddistributiveapproachesaredeveloped.

Figure3.2: Causal modelofbuyersupplierrelationshipcloseness

DistributiveSupplyManagement (MarketBasedSupplierDevelopment)

()

() BuyerSupplier RelationshipCloseness (Trust,Commitment, Solidarity,Information Sharing,Shared Benefit)

Strategic Importance ofRelationship

(+)

(+)

IntegrativeSupplyManagement (DirectSupplierDevelopment)

3.2.1 IntegrativeActivities Transaction cost economic theory suggests that interfirm activities may be characterized in accordance withthe specificity of the human, procedural, and physical assets involved with the particular initiative (Dyer, 1996c Williamson, 1979 Zaheer and Venkatraman, 1995). Zaheer and Venkatraman (1995, p. 377) suggest that human asset specificity refers to the degree to which skills, knowledge, and experience of a firms personnel are specific to the requirementsofdealingwithanotherfirminaverticalrelationship.Humanassetspecificity accruesasexchangepartnerscollaborateanddevelopacommonlanguagethatfacilitatesthe efficientcodificationand interpretationof information(Dyer,1996cWilliamson,1979).In

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general terms, Williamson (1979) cites specialized training and learningbydoing as specializedinvestmentsinhumanassets.Morespecifically,paststudieshaveconceptualized human asset specificity as (1) dedicated engineers who learn the systems, procedures, and processesofanexchangepartner(Dyer,1996c,p.273),(2)transactionspecificknowledge ofship building(Masten,Meehan,andSnyder,1991),and(3)productlinespecifictraining (John andWeitz,1988). Drawing from transaction cost economic theory, Krause et al. (2000) argue that supplierdevelopmentactivitiescanbeclassifiedintotwocategoriesinaccordancewiththeir associated asset specificity: (1) marketbased supplier development activities and (2) direct involvementsupplierdevelopmentactivities.Whereasasmarketbasedactivitiesarelimited totheuseofmarketincentives,directinvolvemententailsinvestmentsbythebuyingfirmin the supplier through activities such as training and education of a suppliers personnel and dedicatingbuyingfirmpersonneltemporarilytothesupplier(Krauseetal.,2000,p.37).As noted by Krause et al. (2000), direct involvement activities involve nontransferable investments in specialized assets. In contrast to marketbased actions, direct involvement supplierdevelopmentinfersthatthebuyingfirmdirectlybearscostsofsupplierimprovement efforts in anticipation of improved supplier performance. In their study of ISM Title 1 purchasing managers, Krause et al. (2000) find that buyers use of supplier incentives and formalassessmentleadtogreateruseofdirectsupplierdevelopmenttechniques,whichinturn arerelatedtoimprovementsin buyersperformance. DyerandChu(2000)provideadditionalinsightsintotherelationshipsbetweenbuyer assistanceandbuyersuppliertrust.Intheirstudy,DyerandChu(2000,p.265)arguethata buyersofferoffreeassistanceservesasasignalofgoodwillandcommitmentbecauseit

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suggeststhatthe[buyer]isgenuinelyconcernedwiththewelfareofthesupplier.Abuyers provisionofgenuine assistance alsoservestosignalthe buyers lackofopportunistic intent (DyerandChu,2000).DyerandChu(2000)furthersuggestthatapatternofbuyerassistance maybeperceivedbyasupplierasstrongcommitmenttothebuyersupplierrelationship.In theirstudyofU.S.,Korean,andJapaneseautomakers,DyerandChu(2000)findthat,within allthreecountries,supplierassistanceispositivelyrelatedtobuyersuppliertrust. Negotiationtheoryprovidesadditional insights intothenatureof integrativeactivity. Perdue and Summers (1991) characterize integrative negotiations as a problemsolving negotiationstrategyinwhichpartiesjointlyassessallalternativesandtheiroutcomesinorder tomaximizeandequitablysharederivedbenefits. Usingsurveyresponsedatacollectedfrom purchasing agents across several industries, Perdue and Summers (1991) find that buyers cooperative orientation, i.e., a buyers concern for a suppliers welfare, is positively associatedwitha buyersuseofintegrativenegotiationtactics. Similarly,severaladditional conceptual and empirical studies of negotiation characterize integrative negotiation as a collaborative problemsolving activity that may be used to develop winwin outcomes and establish closer buyersupplier relationships (Clopton, 1984 Ramsay, 2004 Rognes, 1995 SchurrandOzanne,1985Smeltzeretal.,2003StuartandMcCutcheon,1995) Studies of buyersupplier relationships have conceptualized integrative interfirm activityas jointeffortandsharedproblemsolving.Stuart(1993)arguesthatjointproblem solving is an important determinant of a partnerstyle relationship and operationalizes joint problemsolvingasthedegreetowhichbuyersprovidedirectassistancetotheirsuppliers.In his study of industrial purchasing relationships, Stuart (1993) finds positive correlations betweenjointproblemsolvingandshorttermimprovementsandlongtermperformance. In

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asimilarvein,BensaouandVenkatraman(1995,p.1478)operationalizejointactionasthe extent to which there exist joint effort and cooperation between buyer and supplier in the areasofplanning,engineering,development,andtraining. Usingclusteranalysistoidentify relational configurations, Bensaou and Venkatraman (1995) find significant differences in jointactionacrossclustersandconcludethatprocessmechanisms,whichincludejointaction, in addition to structural mechanisms facilitate information processing in highly uncertain environments. Inacrossindustrystudyoforiginalequipmentmanufacturers,HeideandJohn(1990, p.25)definejointactionasthedegreeofinterpenetrationoforganizationalboundariesand examine the direct and indirect antecedents of joint action. Heide and John (1990, p. 25) argue that the shift from traditional purchasing to closer relationships requires cooperative, coordinated action. Whereas traditional purchasing approaches involve clearly delineated taskresponsibilities,theestablishmentofcloserelationships involvessharedresponsibilities inwhichtaskcompletionisdependentuponjointefforts.Intheirstudyofjointaction,Heide andJohn(1990)findthatbuyersupplierjointeffortispositivelyrelatedtobuyerandsupplier investmentinrelationshipspecificassets,relationshipcontinuity,andsupplierevaluation. Usingtherepertorygridinterviewingtechnique,Goffinetal.(2006,p.200,Table4) elicitedthefollowingdescriptionsofjointproblemsolvingfrompurchasingmanagers:Ican callasupplierifIhaveaproblemandIcanaskhimdirectlywhetherhecanhelpme.Some help me to jointly solve a problem, others do not help us at all. Some suppliers help us solvingourproblems.Ireallygetfullsupportinfindingananswertoourproblem.Icanring them any time and I would be certain that we would find a way to overcome the problem together. I would also ring another supplier, but others have obvious difficulties to see our

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problemsfromourperspectiveandtherefore,areunabletosolveittogetherwithus. Intheir exploratory study of buyersupplier relationship closeness, Goffin et al. (2006) find that, contrary to expectations, joint problemsolving is not a primary relational attribute that distinguishescloseinterfirmrelationshipsfrommoredistantrelationships. Several studies suggest that joint effort is an essential dimension of interfirm cooperation. HeideandMiner(1992)positthatsharedproblemsolvingindicates,inpart,the extent to which firms engage in reciprocal cooperation. In their study, shared problem solvingisdefinedasthedegreetowhichthepartiessharetheresponsibilityformaintaining therelationship itself and forproblemsthatarise astimegoes byand is operationalizedas joint responsibility for getting things done (Heide and Miner, 1992, p. 275, p. 290). Consistentwiththeirsuppositions,HeideandMiner(1992)findthatthelengthofthebuyer supplier relationship and frequency of delivery are positively related to shared problem solving for both buyers and suppliers. Drawing on the work of Heide and Miner (1992), Prahinski and Benton (2004) integrate measures of shared problemsolving in their operationalizationofbuyersuppliercooperation.Similarly,studiesbyCannonandPerreault (1999), Benton and Maloni (2005), Johnston et al. (2004), and Maloni and Benton (2000) incorporate the notion of shared problemsolving in their conceptualization of interfirm cooperation. Withinthecontextofsupplymanagement,previousresearchsuggeststhatintegrative activities involve buyers investment in relationshipspecific assets to create greater value within the supply relationship. Integrative supply management activities may involve supplier assistance in the form of supplier training and education (Krause et al., 2000), co location of personnel on suppliers premises (Krause et al., 2000), or technical assistance

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duringthedesignanddevelopmentofproductsandtools(BensaouandVenkatraman,1995). Conceptually,pastresearchhassuggestedapositivetheoreticalrelationshipbetweentheuse ofintegrativeinterfirmactivitiesandtheclosenessofbuyersupplierrelationships. Assuch, this research proposes the following hypothesis that asserts a positive relationship between integrativesupplymanagementactivityandbuyersupplierrelationshipcloseness.

H3:

Buyersuseofintegrativesupplymanagementpracticesispositivelyrelatedtobuyer supplierrelationshipcloseness.

3.2.2 DistributiveActivities In accordance with transaction cost economics, distributive supply management activities involve little or no investment in relationshipspecific assets and are conceptually aligned with the notion of traditional purchasing and the maintenance of armslength interfirm relationships. Dwyer et al. (1987, p. 13, Table 1) characterize armslength relationships as discrete transactions having a distinct beginning, short duration, and sharp ending by performance. Further, the same authors assert that armslength relationships involve: (1) minimal personal relationships, (2) rituallike communication, (3) complete transferability suchthattheidentityoftheexchangepartnerisimmaterial,(4)littleornofutureplanning,(5) little attention to measurement as performance is obvious, and (6) clear division of benefits and burdens between exchange parties (Dwyer et al., 1987, p. 13, Table 1). Additionally, Dyer and Ouchi (1993, p. 54, Table 1 paraphrased) argue that traditional U.S. purchasing practices: (1) focus on optimizing firm efficiency rather than value chain efficiency, (2) emphasizeunitcostratherthantotalcostandproductquality,(3)involvesporadicratherthan

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frequent, planned interfirm communication, (4) are based on little information sharing and interfirmassistance,and(5)involveinvestmentsingeneralpurposeassets. Stuart(1993)conceptualizestraditionalpurchasingasa supply managementstrategy based on competitive bidding. Using an extreme illustration to distinguish traditional purchasingfrom supplierpartnerships,Stuart(1993,p.23,paraphrasedfromFigure1)asserts thatatraditional approachtosupply managementemploysthe followingpurchasingtactics: (1)supplierselectionbasedonprice,(2)useofshorttermcontracts,(3)evaluationbybid,(4) multiple sources for purchased inputs, (5) benefit sharing based on relative power, (6) unilateral problem resolution, (7) withholding of proprietary information, and (8) clear delineationofbusinessresponsibilities. Stuart(1993)suggeststhat,inthecasewherepriceis the primary concern (i.e., commodity products), competitive bidding may be a viable purchasingstrategyhowever,eveninthecaseofcommoditypurchases,Stuart(1993)warns that the traditionalstrategy may lead to shortterm savings at the expense of superior long termperformance. Building on the conceptual developments of Stuart (1993), Krause et al. (2000) suggests that supply management practices may be classified into direct involvement and marketbased activities. In contrast to direct involvement, marketbased activities involve littleornoinvestmentinrelationshipspecificassets.Furthermore,Krauseetal.(2000)argue thatmarketbasedsupplymanagementpracticesmayinvolvepositiveornegativeincentives. Whereas awards of new business and supplier recognition constitute positive marketbased incentives,competitivepressureandthreatsoflossofcurrentbusinessornewbusinesshold represent forms of negative marketbased incentives. Krause et al. (2000, p. 36) study negative market incentives inthe formofcompetitivepressureandsuggestthat competitive

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pressureresultswhenabuyerusesmorethanonesupplierforapurchaseditemorservice,or iswillingandabletoswitchtoanalternatesupplierifitsochooses.Inthiscase,thebuying firm leveragescompetitive marketforcesby soliciting bids from manycompetingsuppliers, utilizing fully developed bidding specifications, and shortterm contracts to ascertain favorable terms of trade (Krause et al. 2000, p. 36). In their study of 527 purchasing managers,Krauseetal.(2000)findthatcompetitivepressureisnotrelatedtobuyersuseof directsupplierdevelopmentactivitiesnorbuyersperformanceimprovement. Negotiation theory provides additional insights into distributive supply management practices. In sharp contrast to an integrative negotiation strategy, distributive negotiation involves aggressive bargaining and the maximization of selfbenefit (Perdue and Summers, 1991).Usingdistributivenegotiationtactics,buyersimplicitlyand/orexplicitlycommunicate negative incentives to suppliers by threatening loss of business, citing the viability and attractivenessofalternatesourcesofsupply,ormakingexcessivedemandsonthesupplierin order to appropriate greater benefit for the buying firm (Perdue and Summers, 1991). Analysisofsurveyresponsedatafrom335NAPMpurchasingmanagerssuggeststhatbuyers use of aggressive bargaining tactics is negatively related to cooperative orientation (Perdue andSummers,1991). In their study of power influences on the supply chain, Maloni and Benton (2000) providefurtherinsightsintotheeffectsofdistributivesupplymanagementpractices.Intheir study, Maloni and Benton (2000) identify six bases of interfirm power: reward, coercion, expert, referent, legitimate, and legal legitimate. Closely aligned with the notion of distributivesupply management,Maloniand Benton(2000,p.54)definecoercivepoweras theabilitytomediatepunishmenttoasupplychainpartnerandciteanautomanufacturers

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ability to cancel business with a firsttier supplier as an example. Consistent with Stuarts (1993) operationalization of competitive pressure and the notion of distributive negotiation culledfromnegotiationtheory,coercioncapitalizesonnegativemarketincentivesinaneffort togainadvantage.Intheirempiricalassessment,MaloniandBenton(2000)findthatbuyers useofcoercivepowerisnegativelyrelatedtobuyersupplierrelationshipstrength. As suggested by the preceding literature, distributive activities involve little or no investment in relationshipspecific assets and rely on negative market incentives to achieve favorableshorttermtradingadvantages. Previousconceptualandempiricalresearchsuggests thatdistributivetactics,whichrelyontheuseof competitivepressure,areconsistentwitha traditionalpurchasingstrategyandtheestablishmentofarmslengthsupplyrelationships.As such, the following hypothesis posits a negative relationship between buyers use of distributivesupplymanagementpracticesandbuyersupplierrelationshipcloseness.

H4:

Buyers use of distributive supply management practices is negatively related to buyersupplierrelationshipcloseness.

3.2.3 StrategicImportanceofRelationship Supplierportfolio management theoryprescribes thatbuyersupplierrelationships should be managedinaccordancewiththeimportanceofthesupplyrelationship(Bensaou,1999Dyer et al., 1998). Marketing literature suggests that the importance of an exchange partner is relatedtothedegreetowhichthatfirmisdependentonanotherforthepurchaseorsaleofa product or service (Ganesan, 1994 Heide, 1994 Heide and John, 1988 Noordewier et al., 1990).Ganesan(1994,p.4)describesbuyersdependenceasabuyersneedtomaintainthe

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exchange relationship in order to achieve desired goals. Heide and John (1998, p. 23) delineate three mechanisms that serve to increase dependence and specifically suggest that buyerdependenceincreaseswhen:(1)outcomesderivedfromasupplyrelationshiparehighly valued or when the magnitude of the exchange between buyer and supplier is high, (2) outcomes derived from a supply relationship are more attractive than those available from alternaterelationships,and(3)feweralternatesourcesofsupplyareavailable. Kraljic (1983) asserts thatthe strategic importance of a supplier is a function of the importance of the items purchased from the supplier and the difficulty of managing the purchase situation. Bensaou (1999) outlines three sets of factors that influence a buyers perception of the strategic importance of a supplier: productlevel, marketlevel, supplier level factors. Whereas product and market level factors correspond to Kraljics (1983) dimensions of item importance and supply market complexity, Bensaou (1999) interjects a third dimension that pertains to supplierspecific attributes. In a similar vein, McCutcheon and Stuart (2000, Figure 1, p. 287) argue that the appropriateness of a close supplier relationship is influenced by forecasted technological discontinuities, criticality of the technologytothebuyer,dynamismoftheinputtechnology,andthepotentialofthesupplier tobecomeafuturecompetitor. Several studies have examined the affects ofproduct and market factors on buyers adoptionofsuppliermanagementpractices.Krause(1999)concludesthattheimportanceof purchased inputs to the buying firm positively affects the buying firms attitude toward suppliers and indirectly leads to higher levels of supplier development adoption. Swink (1999) finds that greater supplier involvement in new product development moderates the relationship between product newness and new product manufacturability. Ragatz et al.

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(2002) report that integrative strategies, based on technology and cost sharing, mediate the relationship between technological uncertainty and cycle time and quality performance, and partially mediate the negative relationship between technological uncertainty and cost performance. Liker et al. (1998) and Wasti and Liker (1997) assert that component design complexity and component newness are positively associated with earlier supplier involvementandgreatersupplierdesigninfluence. Empirical studies of buyersupplier relationships within the operations management and marketing streams of literature also suggest that product and market factors influence buyersselectionofintegrativesuppliermanagementpractices. HeideandJohn(1990)posit that technological and volume unpredictability are indirectly related to buyers use of joint action findings from their study indicate thattechnology unpredictability negatively affects relationship continuity, which in turn is positively related to joint action. Stuart (1993) identifiesapositivecorrelationbetweentheimportanceofpurchasedinputsandtheresources thatbuying firmscommittopurchasing.CannonandPerreault(1999)userelational norms (which includes a measure of joint action) to distinguish between several types of relationships and find that the availability of alternate suppliers, supply market complexity, importanceofsupply,andcomplexityofsupplysignificantlypredictrelationshiptype. Integrating empirical findings with conceptual developments, previous research provides initial support for the assertion that the strategic importance of an exchange relationship may affect a buyers use of integrated and/or distributed supply management activities. Inparticular,conceptualandcasebasedresearcharguesthattheimportanceofthe purchased product and supply complexity are primary determinants of relationship importance (Bensaou, 1999 Caniels and Gelderman, 2005 Dubois and Pedersen, 2002

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GeldermanandvanWeele,2003,2005Kraljic,1983Krauseetal.,1998McCutcheonand Stuart, 2000 Olsen and Ellram, 1997 Wagner and Johnson, 2004). Furthermore, several studies have empirically established a significant relationship between the determinants of relationshipimportanceandtheuseofintegrativesupplymanagementpractices(Cannonand Perreault,1999HeideandJohn,1990Krause,1999Likeretal.,1998Ragatzetal.,2002 Stuart, 1993 Swink, 1999 Wasti and Liker, 1997). Using transitive logic, this research asserts that strategically important buyersupplier relationships warrant greater use of integrative supply management practices. This assertion is formalized in the hypothesis below.

H5:

Thestrategic importanceof asupplyrelationshipispositively relatedto thebuyers useofintegrativesupplymanagementpractices.

Interestingly,littleresearchhasaddressedtherelationshipthatmayexistbetweenthe strategic importance of a buyersupplier relationship and the use of distributive supply management practices. Consistent with the assertions of supplier portfolio management theory,thisstudyarguesthatbuyerspursuedistributivesupplymanagementpracticeswithin supply relationships of lesser strategic importance. In the case of nonstrategic supply relationships, the absence of a longterm value creation proposition motivates buyers to leverage market forces to maximize buyers gains over the shortterm. Conceptual and empirical support for this assertion may be found in supplier segmentation rationale and negotiationtheory. Inaconceptualstudyofsuppliersegmentation,Kraljic(1983)arguesthat noncriticalsupply is best managedwitha focusonfunctionalefficiencyandthroughshort

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term supply contracts. In a study of U.S., Japanese, and Korean automakers, Dyer et al. (1998)suggestthatthemanagementofnonstrategicsuppliersmaybeaccomplishedthrough: (1) price benchmarking, (2) minimal supplier assistance, and (3) performancebased contracting. Negotiationresearchprovidesadditionalinsightintothenegativerelationshipbetween relationshipimportanceandbuyersuseofdistributivesupplymanagementpractices.Intheir study of negotiation tactics, Perdue and Summers (1991) study the effects of cooperative orientation and material cost sensitivity on buyers use of competitive pressure. Findings fromtheirstudyindicatethatmaterialcostsensitivityhasapositiveeffectonabuyersuseof competitivepressurewhiletherelationship betweencooperativeorientationand buyersuse of competitive pressure is not significant. These results, coupled with the conceptual and empirical developments of supplier segmentation studies, suggest that buyers manage non strategicrelationships,whichtendtobeshorterindurationand highlypricesensitive,using distributive supply management practices. This assertion is formalized in the hypothesis below.

H6:

Thestrategicimportanceofasupplyrelationshipisnegativelyrelatedtothebuyers useofdistributivesupplymanagementpractices.

3.3

CharacterizingtheSupplierRelationshipPortfolio

Several conceptual studies have argued the existence of a range of buyersupplier relationships.MohrandNevin(1990)contendthatinterfirmrelationshipsmaybeclassified intermsofthreechannelconditions:structure,climate,andpower. AccordingtoMohrand

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Nevin (1990, p. 40), channel structure refers to how exchanges between parties are patterned and may be described as relational or discrete. Whereas discrete exchanges involveashorttermperspectiveandlowlevelsofrelationshipspecificinvestment,relational exchange includes bilateral planning, longterm orientation, and high levels of interfirm interdependence. Mohr and Nevin (1990, p. 42) define climate as the feelings of channel members about the level of trust and mutual supportiveness in the interorganizational relationship. Inthesamestudy,powerisviewedintermsofsymmetry,wherebytheremay existabalanceorimbalanceofpowerbetweenfirms.Centraltotheconceptualdevelopments of Mohr and Nevin (1990) is that interfirm exchange relationships may be placed on a continuumbasedonthedegreetowhich(1)exchangesarerelationalordiscrete,(2)theinter organizationalclimateismutuallytrustingandsupportive,and(3)thedistributionofpowerin theinterfirmrelationshipisbalanced. BuildingontheworkofMohrandNevin(1990),severalstudieshavesoughttorefine the notion that the closeness of interfirm relationships may be viewed as a continuum, ranging from discrete, marketbased transactions to full partnerships. Webster (1992) conceptualizedarelationshipcontinuumthatstartswithtransactionalrelationshipsatonepole and is anchored by vertical integration at the opposite pole. Importantly, Webster (1992) identifies five forms of interfirm relationships that may not involve joint ownership: transactions, repeated transactions, longtermrelationships, buyersupplier partnerships, and strategic alliances. Lambert et al. (1996) provide additional insight by characterizing three typesofinterfirmpartnershipsthatmayexist:shortterm,longterm,andlongtermwithno end (Goffin et al., 2006, p. 192). Lambert et al. (1996) cite relationship longevity and relationshipclosenessasprimarycriterionthatmaybeusedtodistinguishbetweenformsof

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interfirm partnership. Goffin et al. (2006, p. 192) extend the conceptual developments of Lambertetal.(1996)bycautioningthatthetimedimension(relationshiplongevity)maynot accurately differentiate between types of interfirm partnerships in practice, an extended purchasingrelationshipmaysimplybeattributedtoasuppliersabilitytoprovidealowprice input.Insuchacase,anextendedrelationshipmaybelimitedtoorderplacementandorder delivery(Goffinetal.,2006,p.192).Thus,Goffinetal.(2006,p.192)assertthatitcannot beassumedthatamanufacturerandsupplier inalongtermrelationshipseethemselves ina partnershipandemphasizetheimportanceofclosenessasakeydiscriminatorofrelationship types. Empirically, several studies have developed taxonomies and typologies of buyer supplier relationships. In a study of U.S, Korean, and Japanese automakersupplier relationships, Dyer et al. (1998) ask automakers to select a sample of armslength relationships and a sample of partnerstyle relationships and examine differences in automakersrelationshipspecific investment,supplier informationsharing, buyerassistance, andsuppliertrustbetweenrelationshiptypes. Intheirstudy,Dyeretal.(1998)concludethat Japaneseautomakerstendtosegmentsupplyrelationshipsinaccordancewiththeimportance of the supply relationship. In contrast, U.S. automakers tend to establish unilateral, arms length relationships across their supply pools, even with suppliers of strategically important inputs. Further,Dyeretal.(1998,p.6768)contendthatJapaneseautomakersstrategically segment suppliers into groups based on the importance of purchased inputs and seek to developcloserbuyersupplierrelationshipswiththosesuppliersthatprovideinputsofgreater strategicimportance.

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WhereasDyeretal.(1998)contrasttheattributesofmarketbasedandpartnersupply relationships, Bensaou and Venkatraman (1995) develop a taxonomy of buyersupplier relationships configurations based on the information processing needs and capabilities of interfirmrelationships.Usingatwostageapproachtoclusteranalysistoexamineresponse data collected from purchasing and engineering managers within 14 U.S. and Japanese automakers, Bensaou and Venkatraman (1995) identify five relationship configurations that range in relational closeness: remote relationship, electronic control, electronic interdependence,structuralrelationships,andmutualadjustment.BensaouandVenkatraman (1995)characterizearemoterelationshipashavinglowlevelsoftrust,informationexchange, and interdependence, high levels of supplier competition, and a shortterm orientation. Remote relationships involve exchanges of simple, mature products that require little engineering effort. Electronic control relationships have similar attributes as remote relationships however, electronic control relationships tend to rely more heavily on information technologies to coordinate interfirm activities. Bensaou and Venkatraman (1995) describe electronic interdependence relationships as those relationships that involve thepurchaseofinputsthatareincreasinglyimportanttothebuyingfirm.Exchangeswithin this relationship configuration involve higher levels of customization, engineering effort, technological uncertainty, and system integration and involve products closer to the auto manufacturerscorecompetencies(BensaouandVenkatraman,1995,p.1482). Electronic interdependence relationships are based on more frequent and richer information exchange, useofbestpracticeinformationtechnology,collaborativedisputeresolution,suppliersearly involvement in buyers new product development process, higher levels of supplier assistance, and greater commitment to the interfirm relationship. Structural relationships

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involve the exchange of technically complex, customized products (similar to electronic interdependence relationships) that have limited growth potential (like remote or electronic controlrelationships).Thisrelationalconfigurationischaracterizedbyhighlyroutinebuyer supplierinteractionandlittlemutualtrust,buthighlevelsofrelationshipspecificinvestment. Additionally, structural relationships involve frequent interfirm disagreements, adversarial problem resolution, and limited use of IT to exchange information within a confrontational relational climate (Bensaou and Venkatraman, 1995, p. 1484). Mutual adjustment relationships involve the exchange of complex productsthat incorporate new, dynamic, and supplierproprietarytechnologies.Withinthisrelationalconfiguration,buyersseekaccessto new technologies that will differentiate their endproducts. This type of relationship is characterizedbyhighlevelsofmutualtrust,highlevelsofbuyerdependence,andinformation exchangeslimitedtocoordinatingfutureplansandcontinuousimprovementactivities. Cannon and Perreault (1999) use cluster analysis to develop a buyersupplier relationship taxonomy that identifies eight relationship types. Using survey response data from 428 NAPM buyers and purchasing managers, Cannon and Perreault (1999) use six relationship connectors as the input for cluster analysis: operational linkages, information exchange,legalbonds,cooperativenorms,selleradaptations,andbuyeradaptations. Cannon andPerreault(1999,p.442)defineoperationallinkagesasthedegreetowhichthesystems, procedures,androutinesofthebuyingandsellingorganizationshavebeenlinkedtofacilitate operations. Legal bonds are the detailed and binding contractual agreements that specify theobligationsandrolesofbothpartiesintherelationship(CannonandPerreault,1999,p. 443). As cited by Cannon and Perreault (1999), legal bonds formalize a plan for future interactionandmayservetoconstraintheflexibilityintherelationship.Cooperativenorms

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represent expectations for collaboration and the mutual belief that parties to a relationship mustworktogethertobesuccessful(CannonandPerreault,1999,p. 443).Asoperationalized by Cannon and Perreault (1999),the notion of cooperative norms is conceptually similar to the relational dimensions of solidarity and flexibility developed by Heide and John (1992). Buyer and seller adaptations refer to the extent that each party has invested in product, process,and/orproceduraladaptationsthatfacilitateexchangewithitspartner.Assuch,this construct represents each partys level of relationshipspecific investment. Citing these six relationship connectors as key characteristics of business exchange, Cannon and Perreault (1999) use cluster analyses to identify eight buyersupplier relationship configurations that rangeintermsofbuyersupplierrelationshipcloseness. Towardthefurtherdevelopmentofasupplierportfoliomanagementtheory,thisstudy aimstobuildonpreviousresearchbyexaminingtheclosenessofbuyersupplierrelationships across a single buying firms supply base. As described in 3.1.7, relationship closeness is defined as a multidimensional construct, which consists of six relational elements: trust, commitment, shared benefit, flexibility, information exchange, and solidarity. Consistent withtheassertionsofsupplierportfoliomanagementtheory,thisresearcharguesthatbuying firms simultaneously managesetsofsupplierrelationshipsthatvary intermsofrelationship closeness.Thisassertionisformalizedinthefollowinghypothesis.

H7:

A buying firm simultaneously manages sets (clusters) of supplier relationships characterizedbyvaryinglevelsofbuyersupplierrelationshipcloseness.

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3.4

Analysis of Supply Management and Operational Benefits Across SupplierRelationshipClusters

Theprimaryassertion ofportfoliotheoryisthatabuyingfirmmanagesasupplierrelationship portfolio consisting of sets of supply relationships that range in closeness. Wagner and Johnson(2004)proposethatbuying firmsdeliberately manage setsof supplierrelationships suchthatsupplyrisksandreturnsmaybeoptimizedacrossabuyingfirmsportfolioofsupply relationships. Central to this argument is that a buying firm maintains limited internal resourcesandthatabuying firm must judiciously investin supply managementactivities in ordertooptimizereturnsgainedacrossitssupplybase(WagnerandJohnson,2004). Assuch, thefollowingsectionsseektoexaminetheextenttowhichsupplymanagementpracticesvary across sets of supplier relationships (3.4.1) and the relative magnitude of the operational benefitsthatarederivedfromeachsetofsupplierrelationships(3.4.2). 3.4.1 SupplyManagementPractices As suggested by the literature review provided in Chapter 2, extant research advances the notion that several supply management factors may affect the closeness of a buyersupplier relationship. Drawing from previous research, this studyexamines how a buyers supplier selection criteria, the effectiveness ofa buyers supplier evaluation systems, buyers use of competitivepressure,and buyersprovisionsofsupplierassistancedifferacrossrelationship clusters.Eachofthesesupplymanagementpracticesisdiscussedintheparagraphsbelow. Several studies have examined the importance of comprehensive sets of supplier selection criteria. Using survey response data from 156 automotive purchasing managers, ChoiandHartley(1996)assesstheimportanceof23supplierselectioncriteriafactoranalysis identifiedeightsupplierselectionfactorsthatrelatetoassessmentsof:(1)suppliersfinancial

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health, (2) suppliers product quality and delivery performance consistency, (3) relationship closeness, (4) suppliers manufacturing flexibility, (5) suppliers technical capability, (6) suppliersaftersalessupport/service,(7)productreliability,and(8)productprice.Analysis acrosseachtieroftheautomotive supply chain indicatesthat,regardlessoftier,automotive purchasing managers rate supplier product quality and delivery conformance as the most important selection criteria and suppliers financial health as the least important selection criteria(ChoiandHartley,1996). Kannan and Tan (2002) distinguish between hard and soft supplier selection criteria,citingquantifiablemetricssuchasprice,delivery,quality,andserviceashardcriteria and more difficulttomeasure criteria like suppliers managerial capabilities and strategic direction as soft selection criteria. Using survey response data from 411 ISM and APICS purchasing managers, Kannan and Tan (2002) again find that purchasing managers rate delivery performance and suppliers commitment to quality as the most important selection criteria. Additional hard criteria, such as price and suppliers technical expertise, also ranked highly in terms of importance. Interestingly, as noted by Kannan and Tan (2002), purchasingmanagersdidnotranktheimportanceofsoftselectioncriteriahighly.However, whencorrelatingsupplierselectioncriteriatomeasuresoffirmperformance,KannanandTan (2002) conclude that soft criteria have a broader effect on business performance metrics as comparedtohardcriteria. Extending the conceptual developments of Kannan and Tan (2002), this research suggeststhatabuyersperceptionoftherelativeimportanceofhardandsoftcriteriavariesin accordancewiththeperceived importanceofthe supplyrelationship,andconsequentlywith relationship closeness. In particular, this research suggests that the importance that

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automotivebuyersplaceonbasicselectioncriteria,suchascost,productquality,anddelivery performance does not vary across sets of relationships, which vary in terms of closeness within the automotive industry, these basic selection criteria effectively serve as order qualifiers. However, higherlevel selection criteria, such as suppliers service and support, technology innovation capabilities, and project management capabilities, may become increasinglyimportantwithincloserbuyersupplierrelationships.Transactioncosteconomic (TCE)theoryprovidestheunderlyingrationalefortheseassertions. TCElogicsuggeststhat closer buyersupplier relationships may involve greater investments in relationshipspecific assets that, in the initial stages of relationship development, necessitate higherlevel safeguarding mechanisms.These higherlevel safeguarding mechanisms initiallyprotectthe buyer from a suppliers opportunistic behavior and allow the development of closer buyer supplier relationships over time (Dwyer et al., 1987 Stump and Heide, 1996). Supplier portfolio managementtheoryprovides additional support forthese assertions. In particular, supplier portfolio management theory suggests that buyersupplier relationship closeness shouldvaryinaccordancewiththestrategicimportanceofthesupplierinordertomaximize returns across the supply base (Wagner and Johnson, 2004). Arguably, strategic suppliers maybemorelikelytoprovidebuyerswithcompetitiveadvantagethroughproductandservice differentiation. As such, strategic suppliers must excel in areas of support, technical innovation,andmanagerialcapabilities,inadditiontoprovidinghighqualitypartsontimeat a fair price, in order to convey performance advantages of high strategic importance tothe buying firm. Thus, the following hypothesis posits that the relative importance of higher level supplier selection criteria, such as suppliers support, technological innovation

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capabilities,andoverallmanagerialcapabilitiesvaryinaccordancewiththeclosenessofthe relationshipcluster.

H8:

Therelativeimportanceofhigherlevelsupplierselectioncriteria,measuredinterms of service and support, technological innovation, and project management capabilities, increases within relationship clusters characterized by higher levels of closeness.

Whereasassupplierselectioninvolvesexantesupplierscreening,supplierevaluation refers to ex post supplier performance verification (Heide and John, 1990). Adapting the definition developed by Krause et al. (2000, p. 36), supplier evaluation refers to a buying firmseffortstoconductindepthevaluationsofsuppliersquality,delivery,cost,technical, andmanagerialcapabilitiesandprovideevaluationfeedbacktosuppliers. Assuggestedby Krauseetal.(2000),supplierevaluationconsistsoftwoelementalactivities:monitoringand feedback. Heide and John (1990) assert that supplier monitoring is positively related to buyersupplier joint effort. In their study, Heide and John (1990, p. 26) argue that higher levels of joint effort introduce more uncertainty into a firms decisionmaking because its activitiesaredirectlyinfluencedbytheotherpartysroleperformanceandthe[buying]firm must concede some greater degree of autonomy. Essentially, more effective monitoring enables a buying firm to assess the performance and capabilities of the supplier in orderto mitigate potential risks associated with losses of control. Consistent with their assertions, Heide and John (1990) find that buyers supplier evaluation efforts are positively related to higherlevelsofbuyersupplierjointaction.

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Drawingfrom transactioncosteconomictheory,StumpandHeide(1996)contendthat exantescreeningmaynotadequatelyprotectabuyerfromasuppliersopportunisticbehavior and suggest that buyers engage in ongoing monitoring to ensure performance compliance. Further,thesameauthorsnotethatmonitoringservestoreduceinformationasymmetriesthat may exist between buyer and supplier, allowing the buying firm to detect and subsequently reduce suppliers opportunistic behavior. Building on these arguments, Stump and Heide (1996)hypothesizethatbuyersrelationshipspecificinvestmentandpurchaseimportanceare positively related to buyers monitoring efforts. Findings based ondata gathered from 164 purchasingprofessionalsinthechemicalindustrydidnotdirectlysupportthesehypothesized relationships.However,pathanalysissuggeststhattheeffectsofbuyersrelationshipspecific investment and purchase importance on monitoring are mediated through supplier ex ante screening(StumpandHeide,1996). Severalstudieshavealsoexaminedtheroleof supplierevaluationfeedback.Prahinski and Benton (2004) contend that supplier evaluation feedback strengthens buyersupplier relationships.Inparticular,PrahinskiandBenton(2004,p.44)assertthatsupplierevaluation feedbackactstoeliminateambiguity,leadingtoacloserperceivedrelationship,[enhancing] commitment and cooperation between the supplier and buying firm. Empirical analysis, basedonsurveyresponsedatafromtheautomotiveindustry,suggeststhatsupplierevaluation feedbackispositivelyrelatedtobuyersupplierrelationshipcloseness(PrahinskiandBenton, 2004).Inasimilarvein,Krauseetal.(2000,p.36)suggestthatsupplierevaluationfeedback serves to clarify the buying firms expectations and provide the supplier with direction for improvement and find support for a positive relationship between buyers use of supplier evaluationandbuyersadoptionofdirectsupplierdevelopmentactivities.

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Inthisstudy,supplierevaluationisconceptualizedintermsoftwokeyelements:(1) theextentofbuyerssupplierperformancecompliancemonitoringand(2)theextenttowhich a buyer communicates evaluation feedback to the supplier. Previous research suggests that monitoring and feedback are positively related to buyers relationshipspecific investment (Stump and Heide, 1996), buyersupplier joint effort (Heide and John, 1990 Krause et al., 2000), and buyersupplier relationship closeness (Prahinski and Benton, 2004). Consistent with past findings, this research posits that the comprehensiveness of buyers supplier evaluationvariesinaccordancewiththeclosenessofabuyersupplierrelationship.

H9:

The comprehensiveness of buyers evaluation systems increases within relationship clusterscharacterizedbyhigherlevelsofcloseness.

Asarguedin3.2,supplierdevelopmenteffortsmaybeclassifiedasmarketbasedor as direct assistance (Krause et al., 2000). Whereas buyers use of competitive pressure to motivate supplier performance improvement constitutes a marketbased approach, direct assistance suggests that a buyer allocates internal resources in an effort to help a supplier improveitsperformance(Krauseetal.,2000).Asdefendedin3.2.1,thisresearchpositsthat direct supplier development, such as buyers provisions of supplier assistance, foster the developmentofcloserbuyersupplierrelationships.Conversely,asargued in3.2.2,buyers may leverage competitive pressure to obtain immediate benefits within armslength relationships.Assuch,thefollowingtwohypothesescontendthatbuyersuseofcompetitive pressureandprovisionofdirectassistancevariesacrossrelationshipclusters.

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H10: Buyers use of competitive pressure decreases within relationship clusters characterizedbyhigherlevelsofcloseness.

H11: Buyers provisions of direct assistance increases within relationship clusters characterizedbyhigherlevelsofcloseness.

3.4.2 OperationalBenefits An essential facet of supplier portfolio management theory is the maximization of benefit acrossthesupplybase. Whereasprevioussectionsofthisresearchfocusonthedistribution of close relationships within a single buying firms supply base (3.3) and the supply management practices that influence the distribution of close relationships within a buying firms supplier relationship portfolio (3.4), this section examines how operational benefits differ across relationship clusters. In particular, this section assesses how barriers to technology sharing, the timing of supplier involvement in new product development, cost managementandcostreductionopportunities,effectivenessofinterfirmqualitymanagement practices, and the use of integrative upstream supply management practices vary across supplier relationship clusters. Each of these operational benefits is discussed in the paragraphsbelow. Withinthecontextofsupplierinvolvementinnewproductdevelopment,technology sharing refers to a suppliers willingness to share product technology information with a buying firm prior to receiving assurances from the buying firm to purchase the product technology. The sharing of proprietary product technology exposes a supplier to several vulnerabilities:(1)the supplier may notbeawardedtheproduction business,(2)the buying

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firm may incorporate the new technology into its product without the permission of the supplier, and (3) the buying firm may leak product technology information to competing suppliers. To overcome these potential barriers to product technology sharing, relational exchange theory suggests that buying firms actively develop closer supplier relationships characterizedbystrongrelationalnorms.Inparticular,relationalexchangetheorypositsthat relationalnormsservetoboundopportunisticbehavior(DyerandChu,2003HeideandJohn, 1992) and may promote a climate that may be conducive to technology sharing. Lending empiricalsupporttothisassertion,DyerandChu(2003)findthatsuppliersaremorewilling toshareproprietaryinformation,suchascostdataandproprietarytechnology,withinbuyer supplierrelationshipscharacterized by higher levelsoftrust. Assuch,closerbuyersupplier relationships, which maintain strong relational norms, may serve to mitigate barriers to product technology sharing.Thisrelationshipisformalizedinthefollowinghypothesis.

H12: The magnitude of barriers to product technology sharing decreases within relationshipclusterscharacterizedbyhigherlevelsofcloseness.

Incontrasttothestudyoftechnologysharing,there isasignificantbodyofresearch thataddressesthetimingofsuppliersinvolvementinthenewproductdevelopmentprocess. Thetimingofsupplierinvolvementreferstotheinitialstageinthenewproductdevelopment process in whichsupplier beginstoparticipate inthedesigneffort.Asdiscussed in2.3.3, theNPDprocessmaybeconceptualizedasconsistingofasetofserialstages(Petersenetal., 2005,p.377,paraphrasedfromFigure2):(1)ideagenerationaprocessdrivenbythevoice of the customer, (2) preliminary business and technical assessment, (3)

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product/process/service concept development, (4) product/process/service engineering and testing,and(5)prototypebuildandtestandpilotrampupforoperations.Uponrampup,the new product/service enters fullscale production. Logically, earlier supplier involvement infersasuppliersparticipationinearlierstagesofthenewproductdevelopmentprocess. A significant body of research supports the linkage between information sharing/communication and early supplier involvement. McIvor and Humphreys (2004) conceptualizeearlysupplierinvolvementasaninformationprocessingactivitythatishighly dependent on interfirm communication and the sharing of sensitive information. Similarly, Dowlatshahi (2000, p. 118) proposes that there must be a free flow and sharing of information between buyers and suppliers in part and product design stages and outlines severaltypesof informationthatshould besharedwithin adesignrelationship.Empirically, Likeretal.(1998)findthatgreaterlevelsofCADdataexchangebetweenbuyerandsupplier are associated with earlier supplier involvement in the new product development process. Likeretal.(1996)comparethefrequencyofdesigninformationexchangebetweenU.S.and Japanese automotive firms and find that U.S. firms tend to share information with their suppliers more frequently. However, the same study also finds that designrelated communications within U.S. automotive firms more frequently involve problem resolution, suggesting that more frequent communications may be indicative of a problematic buyer supplierdesigninteraction. Inastudyofsupplierintegrationacross84companies,Petersen et al. (2003) conclude that information sharing is positively related to a suppliers involvement in new product development decisionmaking. While the latter two studies provide peripheral support for the relationship between information exchange and early supplierinvolvement,thesestudiesdonotspecificallyaddressthetimingofinvolvement.

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Further insights may be gained by assessing the role of cost management activities during early supplier involvement in new product development. McIvor and Humphreys (2004) cite cost management activities as a primary driver of information sharing activities during early stages of the new product development cycle. In particular, McIvors and Humphreys (2004, p. 182) identify open book costing, cost transparency, and total cost of ownershipassalientcostmanagementtechniques.Additionalstudiesofsupplierinvolvement in new product development extol the importance of value engineering (Liker et al., 1996) and target costing (Bonaccorsi and Lipparini, 1994 Zirpoli and Caputo, 2002) cost managementtechniques. Asoutlinedin2.2.3,costmanagementactivitiesgenerallyrequire thesuppliertosharesensitiveinternalcoststructureinformationwiththebuyingfirminorder tofacilitatejointcostimprovements. More generally, several studies support the linkage between buyersupplier relationship closeness and early supplier involvement. In a case study of a leading Italian manufacturer, Bonaccorsi and Lipparini (1994) find that buyersupplier interdependence supports early supplier involvement in new product development. In particular, these researchers suggest that devoted resources, demonstrated trustworthiness, mutual commitment, and development of clear norms facilitate early supplier involvement (Bonaccorsi and Lipparini, 1994, pp. 142143). Similarly, several studies citing Japanese automakers associate early supplier involvement with strong buyersupplier relationships (Bonaccorsi andLipparini,1994DyerandOuchi,1993Likeretal.,1998Likeretal.,1996). Consistent with prior research, this study asserts a positive relationship between buyer supplierrelationshipclosenessandsuppliersearlyinvolvementinnewproductdevelopment. Thisassertionisformalizedinthehypothesisbelow.

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H13: Earlysupplierinvolvementinnewproductdevelopmentincreaseswithinrelationship clusterscharacterizedbyhigherlevelsofcloseness.

Previousresearchsuggeststhatseveralintegrativeactivitiesmayhelpidentifyareasof improvement within a buyersupplier relationship. These activities include supplier evaluation (3.4.1), collaborative cost management (2.2.3), and early supplier involvement (discussedabove).Asarguedinprevioussections,theseactivitiesarepositedtobepositively relatedtotheclosenessofthebuyersupplierrelationship.Byextension,thisresearchasserts that suppliers perceive greater opportunities for cost improvements within relationships characterized by higher levels of closeness. This assertion is formalized in the hypothesis below.

H14: Opportunities for cost improvements increase within relationship clusters characterizedbyhigherlevelsofcloseness.

Totalqualitymanagementliteraturesuggestsalinkagebetweencloserbuyersupplier relationships and the effectiveness of interfirm quality management efforts. Ahire et al. (1996,p.28)assertthatthesupplierqualitymanagementapproachshouldformthebasisfor procuring quality parts and suggestthat effective supplier quality management is based on (1) comprehensive supplier selection criteria, (2) effective supplier evaluation, (3) buyers provision of technical assistance to the supplier, and (4) buyers emphasis on longterm relationships. Using survey response data from 162 managers, Ahire et al. (1996) validate

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supplierqualitymanagementasaTQMfactorandconcludethatsupplierqualitymanagement isanintegralelementoftotalqualitymanagementsystems. Carteretal.(1998,p.224)study theroleofbuyersupplierrelationshipsinintegratingTQMthroughthesupplychainandposit that more successful TQM programs include more formal mechanisms that promote buyer supplier interaction. Analysis of survey response data from 302 NAPM buyers and purchasing managers supports this assertion, finding a positive relationship between buyer supplier integration, which includes measures of supplier evaluation and supplier development, and quality management effectiveness (Carter et al., 1998). Curkovic et al. (2000) examine the impact of qualityrelated action programs on quality performance. In their study of 57 firms, Curkovic et al. (2000) conclude that supplier development is positively related to product durability, conformance to specifications, design quality, and responsivenesstocustomerrequests. Powell(1995)assertsthatclosersupplierrelationships areanessentialelementofatotalqualitymanagementapproachandfindsthatclosersupplier relationships are positively related to TQM performance. Building on previous supplier quality management research, this study proposes that the effectiveness of supplier quality managementpracticesispositivelyassociatedwithcloserbuyersupplierrelationships.This relationshipisformalizedin thefollowinghypothesis.

H15: The effectiveness of interfirm quality management practices increases within relationshipclusterscharacterizedbyhigherlevelsofcloseness.

Acomprehensivereviewofextantsupplymanagementliteraturesuggeststhatthereis little previous conceptual or empirical support for the notion that closer customer

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relationshipsmotivateasuppliersuseofintegrativesupplymanagementactivitiestomanage itsupstream suppliers.However,thisresearchsuggeststhatsupplierswhobenefitfromcloser customer relationships may seek further benefit by instituting similar supply management practiceswithintheirsupplybase.Assuggestedbypreviousresearchandarguedwithinthis study,closerbuyersupplierrelationshipsmayyieldincreasedbenefitstoboththebuyerfirm, intheformof (1)increasedaccesstosuppliersproprietarytechnology,(2)improvedproduct performance through early supplier involvement, (3) greater opportunity for joint cost reduction,and(4)improvedsupplierqualityperformance,andtothesupplier,manifestedas (1) improved product manufacturability through early supplier involvement, (2) shared cost savings derived from buyers development efforts, participation in cost management activities, and early involvement in design, (3) improved internal quality systems resulting from buyers quality management efforts, and (4) greater opportunity for internal improvement stemming from buyers evaluation feedback. In an effort to capture greater benefit, suppliers may translate integrative supply management practices to their upstream supplybase.Thisassertionisformalizedinthefollowinghypothesis.

H16: Suppliersuseofintegrativesupplymanagementpracticeswithitsupstreamsuppliers increaseswithinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.

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CHAPTER4 RESEARCHMETHODOLOGY
This chapter describes the research methodology that was employed to test the theory and hypothesesadvancedwithinChapter3. Discussion oftheresearchdesignandmethodology is divided into four main sections. 4.1 provides an overview of the proprietary survey instrumentthatwasusedtocollectdataforthisstudy.Inthenextsection(4.2),theoretical constructs are operationalized and the essential dimension of each measurement item is described. 4.3presentsanoverviewofthestatisticalanalysesemployedtotesteachmodel. In aggregate, measurement development and hypotheses testing requires a wide array of analytical methods including structured equation modeling, principle components analysis, cluster analysis, analysis of variance, and multiple comparison tests. In the subsequent sections,thesamplingframe(4.4)andsurveyadministration (4.5) arediscussed. 4.1 InstrumentDevelopment

Tests of hypotheses are based on data obtained through a previous administration of a proprietary survey developed by a consulting firm that specializes in the study of buyer supplierrelationships.Previousversionsofthissurveyhavebeensuccessfullyadministered bytheconsultingfirmwithinseveralFortune500manufacturingcompanies(andtheirsupply bases) both within and outside the automotive industry prior to this study. Over the past severalyears,supplierrespondentshavecompletedover20,000instancesofthissurveythat has been adapted to address industryspecific and manufacturerspecific issues. Typically, aggregated results from this survey, as prepared by the consulting firm, are used by purchasing executives within manufacturing firms (that contract the consulting firm) to

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developand/orrefinesupplymanagementstrategy.Theextensiveprevioususeofthissurvey anditspractitionerorientationsupportthefacevalidityofthesurveyinstrument. The survey instrument consists of approximately 300 items that measure different aspects of a buyersupplier relationship. At the beginning of the survey questionnaire, supplierrespondentsareinstructedtoanswereachsurveyquestionwithrespecttoaparticular commodity item purchased from their firm by a particular division of the focal automotive components manufacturer.Respondentswereallowedtoanswereachquestionwithrespect tooneortwocommoditydivisioncombinationsifmultiplecommodityitemswerepurchased from their firm. Questions within the survey are grouped within four major sections that address operational matters, buyersupplier relationships, benchmarking, and respondent demographics. Consistent with contemporary design guidelines of selfadministered

questionnaires, this survey employs easy to follow instructions, avoids the use of double barreled questions, relies mainly on single question form and closed answers, and incorporates reversecoded items (Fowler, 2002). Generally, the items within this survey questionnaire facilitatethedevelopmentofseveralcomprehensive multiitemconstructsthat areusedwithinthisresearch. Intotal,thisstudyuses60itemsfromthissurveyquestionnaire totest thesixteenhypothesesdevelopedwithinChapter Three. 4.2 ConstructMeasures

This section provides an overview of the items that are used to measure each theoretical construct.Discussionofconstructsissegmentedintofoursubsections.4.2.1presentsthe operationalizationofeachdimensionoftherelationshipclosenessconstruct.Additionally,the measurement of relationship goodness is discussed. In the following section (4.2.2), measures fortheantecedentsofrelationshipcloseness, including strategic importanceofthe

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relationship, integrative activities, and distributive activities, are outlined. The final two sections(4.2.3and4.2.4)describethemeasuresforthesupplymanagementandoperational benefits constructs, respectively. Paraphrased/summarized versions of each item, which convey the essence of each question while preserving the proprietary nature of the questionnaireandeachindividualquestion,areprovidedinChapter5. 4.2.1 RelationshipClosenessMeasures This research asserts that relationship closeness is a multidimensional construct that characterizes buyers and suppliers perceptions of the intensity of the relational norms that characterize exchange relationships. As cited in 3.1, previous buyersupplier relationship literaturesuggeststhatrelationshipcloseness maybedefined intermsoftrust,commitment, shared benefit, flexibility, information sharing,andsolidarity. Trustreferstothe extentto whichonepartytruststheothernottobehaveopportunistically(DyerandChu,2003,p.62). Trust is operationalized using three items: (1) extent to which the supplier trusts the manufacturer, (2) extent to which the manufacturer treats the supplier as a valued supplier, and(3)extentofmanufacturersfairness.Commitmentmaybedefinedasonepartysdesire to develop a stable relationship, willingness to make shortterm sacrifices to maintain the relationship,andconfidenceinthestabilityoftherelationship(AndersonandWeitz,1992,p. 19). In this study, commitment is measured as the extent to which the manufacturer (1) recognizes suppliers support, (2) honors contractual commitments, and (3) lives up to the spirit of commitments. Shared benefit refers to the fair distribution of benefits that are generated within an exchange relationship (Stuart, 1993). This study employs two items to measuresharedbenefit:extenttowhichthemanufacturersharessavingsthat(1)reduceprice and(2)reduce/avoidcosts. HeideandJohn(1992,p.35)defineflexibilityastheexpectation

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ofwillingnesstomakeadaptationsascircumstanceschange. Usingasingleitem,flexibility ismeasuredastheextenttowhichthemanufacturergivesthesuppliertheflexibilitytomeet costobjectives.Informationsharingreferstotheextenttowhich informationisproactively sharedbetweenexchangepartners(HeideandJohn,1992).Accordingly,informationsharing is measured as the extent to which the supplier openly and honestly shares (1) quality problems, (2) delivery problems, and (3) launch problems with the manufacturer. Finally, solidarity concerns the degree to which exchange partners place a high value on the relationship(HeideandJohn,1992)andismeasuredby the(1)abilityofthesuppliertomake an acceptable return given the manufacturers expectations, (2) manufacturers concern for the suppliers profit margins, and (3) the extent to which the manufacturer covers the supplierscoststhatresultfromthemanufacturerschanges. Thesecond hypothesispositsthatrelationshipcloseness ispositivelyassociatedwith relationship goodness. Relationship goodness refers to the extent to which the overall exchange relationship is perceived as beneficial. Relationship goodness is measured as the extenttowhichthesupplier views(1)the manufacturerasapreferredcustomer,(2)change within the relationship as positive, and (3) the overall relationship with the manufacturer is good. 4.2.2 RelationshipClosenessAntecedentMeasures Thecausalmodelofbuyersupplierrelationshipclosenesspositsatwostagemodelinwhich strategic importance of the buyersupplier relationship affects the buyers use of integrative and distributive strategies, which in turn affect relationship closeness. The strategic importanceoftherelationship,theprimaryindependentvariableinthecausalmodel,refersto thedegreetowhichpartiestoanexchangearedependentupononeanothertoachievedesired

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goals(Ganesan 1994,p.4).Thestrategicimportanceofasupplyrelationshipisgaugedusing asingle itemthatasks supplierstoratetheirrelationshipwiththe manufactureronaseven point continuum that ranges from adversarial to strategic partner. Integrative supply management practices concern the extent to which parties to an exchange engage in joint activities that help improve supplier performance. As such, integrative activities are operationalized as the extent to which the buyer engages in direct involvement supplier development activities (Krause et al., 2000). Integrative supply management activity is measuredastheextenttowhichthemanufacturer(1)helpsthesupplierreducecosts,(2)helps the supplier eliminate waste, (3) helps the supplier improve quality, (4) works with the supplier to improve its supply chain, (5) works with the supplier to implement lean manufacturingconcepts,(6)workswiththesuppliertoimproveitspartsscheduling,and(7) works with the supplier to establish a competitive supply chain. Conversely, distributive supply management activities imply the use of zerosum tactics that aim to maximize the accrualofshorttermbenefits(PerdueandSummers,1991).Inthisstudy,distributivesupply managementpracticesareoperationalizedasthe extenttowhichthe manufacturerleverages competitivepressuretorealizeimmediategains(Krauseetal.,2000)andaremeasuredasthe extenttowhichthesupplierfeelspressureto(1)improvetotalcosts,(2)improvequality,(3) improvedelivery,and(4)upgradetechnology. 4.2.3 SupplyManagementMeasures This research holds that buyersupplier relationship closeness is significantly influenced by the nature and type of supply management practices implemented by the buying firm. In accordance with supplier portfolio management theory, supply management practices representtheprimarymechanismthroughwhichabuyermayaffectthedistributionofclose

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supplierrelationshipswithinthebuyersdirectmaterialsupplyportfolio.Todevelopfurther insights into the association between supply management practices and supplier portfolio management, this study examines how highlevel supplier selection criteria, supplier evaluation, direct involvement, and competitive pressure differ across sets of relationships that compose the supply portfolio. Contrary to previous studies, which assess the absolute importance of a broad set of selection criteria (Choi and Hartley, 1996 Kannan and Tan, 2002SwiftandGruben,2000),thisresearchconsiderstherelativeimportanceofsixsupplier selectioncriteria(cost,productquality,technology/innovation,delivery,service/support,and business management capabilities) and asks supplier respondents to distribute 100 points across these criteria in accordance with importance that the manufacturer placed on each criterion during the supplier selection process. Building on the work of Kannan and Tan (2002)andthenotionofsoftsupplierselectioncriteria,thisstudyoperationalizeshighlevel supplier selection criteria as the sum of the relative importance ratings for technology/innovation, service/support, and business management capabilities. Supplier evaluation comprehensiveness refers to the extent to which the manufacturer accurately assessesallrelevantaspectsofasuppliersperformanceandtheadequacyoftheperformance feedback that the manufacturer provides to the supplier (Krause et al., 2000 Prahinski and Benton,2004StumpandHeide,1996). Supplierevaluationcomprehensivenessismeasured using four items that assess the extent to which the (1) manufacturers metrics accurately reflecttheperformanceofthesuppliersgoods,(2)manufacturerprovidestimelyperformance feedback, (3) manufacturer provides adequate performance feedback, and (4) manufacturer adequatelymeasuresthesuppliersoverallperformance. Measuresfordirectinvolvementand

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competitive pressure are discussed in 4.2.2 (see integrative supply management activities anddistributivesupplymanagementactivities,respectively). 4.2.4OperationalBenefitsMeasures A central tenet of supplier portfolio management theory is that firms accrue differential benefits across their portfolio of supplier relationships in accordance with the closeness of eachsetofrelationships (WagnerandJohnson,2004).Thisresearchstudylendsinsightsinto the advantages gained from buyersupplier relationships by examining how operational benefitsdifferacrossclustersofsupplierrelationships.Inparticular,thisstudyexamineshow barriers to technology sharing, suppliers early involvement in the manufacturers (buying firms) newproductdevelopmentprocess,opportunities forcost improvement,effectiveness of interfirm quality management, and secondtier (upstream) supply management varies across a single manufacturers supplier relationship clusters. Barriers to technology were assessedbyaskingsupplierrespondentstoassesstheextenttowhich 13factorsinhibitedtheir willingnesstosharenewtechnologywiththemanufacturerconceptualanalysissuggestsand statistical analysis confirms that sevenof these factors may be used to identify two distinct barrierstotechnologysharing:(1)manufacturerslackof interestinengaging intechnology sharing activities and (2) suppliers fears of an unfavorable business outcome. Four items assess the extent to which the manufacturers lack of interest poses barriers to technology sharing:(1)lackofpurchasinginterestwithinthemanufacturingfirm,(2)lackofengineering interest within the manufacturing firm, (3) future technology direction is not clearly communicated by the manufacturer, and (4) the manufacturer completes the design of the product before involving the supplier. A second barrier to supplier technology sharing concerns the suppliers fears that the sharing of proprietary information may lead to an

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unfavorable business outcome. The extent to which suppliers fear information misappropriation posesasecondbarriertotechnologysharingthislatterbarriertotechnology sharingismeasuredastheextenttowhich(1)thesupplierbelievesthatitwillnotbeawarded theproductionbusiness,(2)suppliersconcernthatitsideawillbeusedbythemanufacturer withoutitspermission,and(3)suppliersconcernthatcompetitorswilllearnaboutitsideas. Suppliers early involvement concerns the timing of the suppliers involvement in the manufacturersnewproductdevelopmentprocessandismeasured(withasingleitem)asthe extent to which the manufacturer involves the supplier early enough in its product developmentprocess.Additionalinsightintosupplierinvolvementwasobtainedbyassessing the suppliers design responsibilities for the purchased commodity. Using a categorical response scale, supplier respondents were asked to describe their firms product design responsibilities and were prompted to choose one of four responses (paraphrased): (1) the manufacturerisresponsibleforthedesignoftheproductmyfirmbuildstoprint,(2)myfirm shares design and development responsibilities with the manufacturer, (3) my firm has completedesignanddevelopmentresponsibilitythemanufacturerisresponsibleforproduct integration,and(4)myfirmhasfullproductdesignanddevelopmentresponsibility,including responsibilities related to product integration. Increased cost improvement opportunities representanotherpotentialoperationalbenefitthatmaybederivedfromcloserbuyersupplier relationships.Costimprovementopportunitieswereassessedbyaskingsupplierrespondents toratetheextenttowhich sevenfactorsrepresentopportunitiesforthemanufacturertoreduce the costs of the products that the supplier sells to the manufacturer. As such, cost improvementopportunity is measuredastheextenttowhichthesupplier sees improvement opportunity through: (1) reduced engineering specifications, (2) reduced

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bureaucracy/paperwork,(3)makingproductspecificationsconsistentwithindustrystandards, (4) using simplified designs, (5) commonizing material specifications across the manufacturersdivisions,(6)standardizingpartsacrossthemanufacturersdivisions,and(7) communizingthevalidationprocessacrossproducts. Theeffectivenessofinterfirmquality managementreferstotheeffectthatthemanufacturersqualitymanagementpolicieshaveon the suppliers product quality. The effectiveness of interfirm quality management was assessedbymeasuringtheextenttowhichthefollowingfactorshurtthequalityofthegoods suppliedtothe manufacturer:(1)notreceivingqualityrelated feedback inatimely manner, (2) manufacturers lack of specific quality requirements, and (3) having price pressures overridequalityconcerns. Finally,suppliersuseofintegrativesupplymanagementpractices is measured by assessing the extent to which a supplier works to develop cooperative relationshipswithitssuppliers. 4.3 SampleFrame

Thisstudyexaminesasinglebuying firmsportfolioofsupplierrelationships.Assuch,the unitofanalysisforthisstudyisthebuyersupplierrelationship.Thesampleforthisstudyis the global pool of direct material, bidlist suppliers to a firsttier, global automotive components manufacturer. Asdefined bythe buying firm, bidlistsuppliersare approved suppliers that maintain buyercertified quality systems and are favored for future business. Theinitialsampleofsupplyrelationshipstargeteddirectmaterialsuppliersthat(1)provideat least$100,000ofpurchasedmaterialstothebuyingfirmannually,(2)havenotbeenorwill notbedesourcedwithinthesubsequentyear,(3)donotcompetewiththebuyingfirminend productmarkets,and(4)donotprovideproductsinwhichsourcingdecisionsaredirectedby

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the buying firms customers (i.e., suppliers associated with customerdirected buys are omitted). Asinglerespondentwastargetedwithineach supplying firm included inthe sample and served as the sole respondent for each supplier that participated in this study. The targeted respondents were identified by the buying firm as having primary commercial responsibility for the supply relationship. Potential respondents targeted for survey administrationheldarangeofpositions,includingsalesrepresentative,accountmanager,vice president,andpresident.Eighthundredand fortyeight globaldirect materialsupplierstoa singleautomotivecomponentsmanufacturerweretargetedforsurveyadministration. 4.4 SurveyAdministration

Between April and May 2004, a proprietary online survey was administered by an experienced research consultancy to global direct material suppliers of an automotive components manufacturer. Survey administration proceeded in three waves. Initially, targetedrespondentswerecontactedviaemailandinvitedtoparticipateinanonlinesurvey of buyersupplier relationships sponsored by the automotive components manufacturer and hostedbytheresearchconsultancy. Nonrespondentswerecontactedviaemailinsubsequent twoweekperiodstomotivatefurtherparticipation.Intotal,surveyadministrationconsisted ofaninitialcontactatWeek0,areminderatWeek2,andafollowupreminderatWeek4. Theintroductionofthequestionnaireexplainedthattheobjectiveofthesurveyisto gain an understanding of the perceptions of the [automotive components manufacturer]s suppliers regarding their relationship with the [automotive components manufacturer] and thattheresultsofthesurveywillprovidedirectionsastohowthe[automotivecomponents manufacturer]canwork moreeffectively with itssuppliers.Participantswereassuredthat

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their responses would remain confidential as no one within the [automotive components manufacturer]s organization would see the completed questionnaire or the individual responses to the questions. Subsequently, participants were encouraged to answer each questionfranklyandcandidly. The survey instructions directed respondents to answer questionnaire items on the basis of supplying a particular commodity group to a particular division of the automotive components manufacturer. Each potential participant was allowed to respond to each questionwithrespecttotwo(2)commoditydivisioncombinations. Thesupplier,commodity group, and division within the automotive components manufacturers organization that purchasesthecommodityformthebasisforeachresponserecord. 4.5 StatisticalAnalysis

Thisresearchstudyprimarilyreliesontwostatisticalprocedurestotestthetheoreticalmodels and hypotheses developed in Chapter 3: (1) structural equation modeling and (2) cluster analysis. Structural equation modeling, accomplished using AMOS v6 software, is used to assessthe validityofthesecondorderfactormodelofrelationship closeness andthecausal model of relationship closeness. Cluster analysis, facilitated through the use of SPSS v11 software, was performed using Wards minimum variance method ofhierarchical clustering and Kmeans iterative partitioning. A description of these statistical methods is discussed withinthefollowingsubsections. 4.5.1 StructuralEquationModeling Thereareavarietyofstatisticalmethodsthatmaybeusedtoidentifystatisticalassociations between latent variables these approaches may be viewed on a continuum based on complexity.Inthesimplestapproach,exploratoryfactoranalysis(i.e.,PCAorPFA)maybe

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usedtoreducealargesetofitemsintoasmallersetofunderlyingfactorsandgeneratefactor scores on a casebycase basis. Subsequently, simple regression (i.e., bivariate correlation), standard multiple regression, or hierarchical multiple regression may be employed to relate theselatentvariablesaspertheunderlyingtheorybeingtested(Gefen,Straub,andBoudreau, 2000).Anunderlyingproblemwiththisapproach,however,isthatitdoesnotcapitalizeon the statistical power that is inherent in a multivariate approach, whereby the linear combinationofrelatedlatentvariablesthatserveasdependentvariablesareregressedontoa linearcombinationofindependentvariables(Mitzel,1982). Structuralequationmodeling(SEM)involvesafamilyofadvancedstatisticalanalysis techniques that provide an alternate means of assessing multivariate relationships. Byrne (2001,p.3)notesthatthetermSEMimpliestwoimportantattributesofthestatisticalanalysis technique:(a)thecausalprocessesunderstudyarerepresentedasaseriesofstructural(i.e., regression) equations, and (b) that these structural relations can be modeled pictorially to enableaclearerconceptualizationofthetheoryunderstudy.SEMisdescribedasasecond generation statistical approach in which factor analysis and structural relationships between latentvariablesareestimatedsimultaneously.ThemainadvantageofSEMbasedprocedures relates to the flexibility inherent in SEM approaches (Chin, 1998b). This flexibility is illustrated by noting that multiple regression and canonical correlation can be shown to be specialcasesofSEM. Data analysis begins with the specification of a theoretical causal model. A typical structural equation model consists of several latent factorsthat may be causally related and theirunderlyingobservedmeasures.Latentvariablesrepresentabstractconceptsthatcannot be directly measured (Kaplan and Saccuzzo, 2001). As such, latent variables must be

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operationallydefinedandlinkedwithobservablemeasures(manifestvariables)thatrepresent thefocal construct(Byrne,2001).Latentconstructscanbeexogenousorendogenous.The causesofexogenouslatentvariablesareassumedtobeoutsidethescopeofthemodelunder study as such, exogenous latent variables assume the role of independent variable. Endogenous latent variables, or dependent variables, are factors whose causes are explicitly consideredwithinthemodel.Eachlatentendogenousfactorhastwotypesofpredictors:(1) the antecedent exogenous and/or endogenous variables that are hypothesized to cause the focal endogenous variable and (2) the residual (or disturbance), which accounts for the leftover,orunexplainedvarianceinthefocalendogenousvariable. Within the context of covariancebased SEM, the variance of a latent variable is assumedtobeerrorfree.Systematic andrandom measurementerrorisremoved fromeach observed measure prior to developing itemtofactor loadings. Consequently, covariance basedSEMapproaches are likenedtoFactorAnalysis(FA).Aswith FA,covariancebased SEMapproachesrelyonthecovarianceofafactorsobservedmeasuresratherthantheentire varianceofeachmeasure.Alluniquenessassociatedwitheachobservedmeasureiscaptured withintheerrortermassociatedwitheachmanifestvariable. Structural equation models based on Maximum Likelihood estimation require large sample sizes however, subsequent analytical research suggests that the minimum required sample size is dependent on the level of desired congruence between the sample and population models, the degree of communalities between factor items, and the ratio of observedvariablestolatentvariables(MacCallum,Browne,andSugawara,1996). Ingeneral,
2 highcommunalities(i.e.,goodfactorswhereh >0.60)andhighitemtofactorratios(20:3)

mitigate the need for large samples to achieve high congruence between sample and

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populationmodels.Asageneralruleofthumb,largesamples(N400)aredesirablebecause communalitiescannotbepredictedaheadofdatacollection. To test multivariate relationships, this research adopts a twostep approach to parameterestimationdevelopedbyAndersonandGerbing(1988)andrefinedbyGarverand Mentzer(1999).Inthefirststep,themeasurement(saturated)modelisassessedandresulting fit statistics serve as a baseline for structural model evaluation. In the second step, the structural model is evaluated. Whereas all factors are allowed to freely covary in the measurementmodel,thestructuralmodel(a.k.a.,hybridmodelorcausalmodel)imposes selectconstraintsonthepathsthatrelatelatentfactors,suchthatanunderlyingtheorymaybe tested. The greater the number of constraints (or degrees of freedom) imposed on the structural model, the stronger the test of the underlying theory is. As such, model fit and parsimonyarejointlyconsideredduringtheestimationprocess. The rationale that underlies the Anderson and Gerbing (1988) twostep approach to modelestimationconcernstheobfuscationofmodelfit. Whenmodelestimationisconfined to a singlestep analysis, the causes of goodness or lack of fit are difficult to identify. For example,inasinglestepanalysis,itisdifficulttounderstandifpoormodelfitisduetopoor measures or causal misspecification. This difficulty is further exacerbated by the dramatic difference in degrees of freedom typically associated with the measurement model as compared to the structural model. In a typical analysis, the majority of the degrees of freedomareattributabletothemeasurementmodel.Therefore,incaseswheretherearefew constraints imposed bythestructural model,poorstructural fit maystillresult in acceptable overallmodelfitbecauseofthegoodnessoffitofthemeasurementmodel.

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To address the aforementioned issues, Anderson and Gerbing (1998) suggest a two step modeling approach. In this twostep approach, the separation of measurement and structuralmodelsresolvesconfoundingissuessurroundinginterpretationoffit.Additionally, assessment of the measurement model allows a robust method for evaluating the unidimensionalityofscales,convergentvalidity,anddiscriminantvalidity.Asnotedearlier, theinitialstepinthismodelingapproachistoassessthemeasurementmodel.Inthisphaseof evaluation, focus is placed on the relationship between the observed variables and latent constructs. Diagrammatically speaking, observed measures are considered as reflective indicatorsoftheirassociatedlatentvariableandeachlatentvariableisallowedtocovarywith oneanother.Themeasurementmodelisformallyequivalenttothesaturatedmodelwhereby all latent variables are interrelated via covariance paths. Assuming all manifest variables significantly load onto their respective latent variable, there are no crossloadings in which observed variables load onto unintended latent variables, measurement errors amongst manifest variables remain uncorrelated, and model fit is satisfactory, the scales may be consideredunidimensionalandconvergentvalidityisevidenced. Discriminant validity may be assessed through a process in which the measurement modelissystematicallymanipulated.Inthisprocess,aseriesofnestedmodelsarecreatedin which a single correlation between latent factors is constrained to one (Anderson and Gerbing,1988).Inaseriesofchisquaredifferencetests,thechisquarestatistic(CMIN)of eachnestedmodeliscomparedtothatoftheoriginalmodel.Asignificantchisquarestatistic (havingonedegreeoffreedom)indicatesthatthefitofthenestedmodelissignificantlyworse thanthatoftheoriginalmeasurementmodelthisresultimpliesthatthelatentvariableslinked

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viatheconstrainedcovariancepatharenotthesameconstructand,subsequently,discriminant validityisevidenced. Oncethemeasurementmodelisdeemedvalid,predictiveandcriterionvaliditycanbe testedbyassessingthestructuralmodel(AndersonandGerbing,1988).Thestructuralmodel is created by imposing constraints on the measurement model in such a manner that is consistentwiththehypothesizedrelationshipsbetweenlatentvariables.Similartothetestsof discriminantvalidity,assessmentofthegoodnessoffitofthenestedstructuralmodelmaybe determined through a series of chisquare difference tests. Degrees of freedom for the differencetestaredeterminedbythenumberofadditionalparametersconstrainedwithinthe structural model and the chisquared difference test is based upon the discrepancy of measurement models chisquared statistic as compared tothat of the structural model. As noted earlier, a significant result to this inferential test indicates that the structural model providespoorfitandisconsequentlynotsupportedbythedata.However,assumingthatthe goodness of fit indices of the measurement and structural models are acceptable, model parameters, such as path coefficients, error variances, and squared multiple correlations can beinterpreted. 4.5.2 ClusterAnalysis Using the dimensions of relationship closeness as classification variables, a complementary set of cluster analysis techniques is used to identify homogeneous subsets of supplier relationships within the buying firms supplier relationship portfolio. Punj and Stewart (1983) describe cluster analysis as a purely empirical statistical method for classification. Previousresearchdescribesclustersasrelativelycontiguouspointsinspaceandsuggeststhat clusters should exhibit two properties: external isolation and internal cohesion (Punj and

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Stewart, 1983, p. 136). Closely related to the conceptual notions of withingroup and betweengroupvariationthatunderlietheanalysisofvariance,externalisolationreferstothe degree of separation of objects in different clusters whereas internal cohesion concerns the similarity of objects in the same cluster. Punj and Stewart (1983) suggest that useful clustering algorithms should seek to maximize external isolation and internal cohesion in order toproduceausefulclassification. Extant research identifies two main types of clustering algorithms: hierarchical and iterative (nonhierarchical) (Aldenderfer and Blashfield, 1984 Ketchen and Shook, 1996 Punj and Stewart, 1983). Ketchen and Shook (1996, p. 444) note that hierarchical algorithms progress through a series of steps that build treelike structure by either adding individual elements to (i.e., agglomerative) or deleting them from (i.e., divisive) clusters. Severalmathematicalproceduresmaybeusedtocalculatethesimilarityordistancebetween clusters. Ketchen and Shook (1996, p. 445) note three primary weaknesses to hierarchical clustering:(1)researchersoftendonotknowtheunderlyingstructureinadvance,makingit difficult to select the correct algorithm, (2) hierarchical algorithms generate cluster assignmentswithasingle iteration,preventingthe modificationofpoorclusterassignments, and(3)forsmallsamples,hierarchicalclustersolutionsareunstablewhencasesaredropped. Iterative partitioning methods, such as Kmeans clustering, partition the data into a prespecified number of clusters (Ketchen and Shook, 1996, p. 445). As described by KetchenandShook(1996),iterativepartitioninginvolvesmultiplepassesthroughthedataset in which observations are assigned to the cluster with the nearest centroid. In subsequent passes, cluster centroids are recomputed and the assignment of cases to clusters is refined. The iterative process stops or converges when successive passes result in few or no

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reassignments. Ketchen and Shook (1996) cite two primary advantages of iterative partitioning over hierarchical clusters: (1) by allowing the reassignment of observations to clustersinsubsequentiterations,outliershavelesseffectonthefinalsolutionand(2)iteration facilitates withincluster homogeneity (internal cohesion) and between cluster heterogeneity (external isolation). However, a potential downfall of iterative partitioning is the need to specifythenumberofclustersandinitialclustercentroidsapriori. Intheirreviewofclusteringalgorithms,PunjandStewart(1983)concludethatWards minimumvariancemethod,averagelinkage,andseveralvariantsoftheiterativepartitioning method, including Kmeans iterative partitioning, appear to outperform all other clustering methods.Morespecifically,PunjandStewarts(1983,p.138)reviewsuggeststhatWards minimum variance method outperforms average linkage, except in the presence of outliers. Additionally,KmeansiterativepartitioningappearstooutperformWardsminimumvariance method if nonrandom initial centroids are specified (Punj and Stewart, 1983, p. 138). However, Kmeans iterative partitioning yields a far inferior solution when random initial centroids are specified (Punj and Stewart, 1983,p. 138). Adopting the suggestions of Punj andStewart(1983),KetchenandShook(1996)summarizethestrengthsof hierarchicaland iterative clustering techniques and refine a stepwise approach to cluster analysis. This approach is based on the use of hierarchical clustering (ex. Wards minimum variance method) followed by the subsequent application ofnonhierarchicalcluster analysis (ex. K meansclusteranalysis). Inthisapproach,Wardsminimumvariancemethodmaybeusedto identifythe numberofclusters inthe final solutionandthe initial centroidsofeachcluster. Subsequent cluster analysis, using Kmeans iterative partitioning and initial centroids from Wardsminimumvariancemethod,isusedtorefinetheclustersolution.

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CHAPTER5 MEASUREMENT PROCEDURESANDRESULTS

This chapter describes the statistical techniques used to assess the quality of the response datasetandreportstheresultsoftheseevaluations.Inthefirstsection,theoverallqualityof theresponsedatasetisassessedandreported.Inparticular,5.1reportstheresponserateand describesthehandingofmissingdata.Additionally,thissectiontestsforthepresenceofnon responsebiasanddescribesproceduresusedtoassessthenormalityoftheeachmeasure. In 5.2, the sample demographics are described. This section introduces several measures that describe the direct material suppliers who have responded tothis survey. In particular, 5.2 reports suppliers total annual sales, suppliers annual automotive sales, supplierstotalannualsalestotheautomotivecomponentsmanufacturer,percentageoftotal automotive sales to the automotive components manufacturer, suppliers research and developmentexpenseasapercentageoftotalannualautomotivesales,numberof yearsthat the supplier has supplied the automotive components manufacturer, the suppliers headquarters location, and the commodity group that is associated with each exchange relationshipfortheresponsedataset. The remainder of this chapter reports the assessment of construct validity for each multiitemfactorusedwithinthisstudy. Thisresearchstudyemploystwoprimaryanalytical techniques to assess construct validity: (1) confirmatory factor analysis using a covariance based structural equation modeling approach (SEMAMOS statistical software) and (2) principal components analysis (exploratory factor analysis) used in a confirmatory mode (SPSSstatisticalsoftware).Whereastheresearchtraditionassociatedwithstructuralequation modeling approaches intimates the use of confirmatory factor analysis (SEMAMOS) to

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assessconstructvalidity,theexploratory natureofclusteranalysis suggeststhatexploratory factor analysis represents an appropriate statistical method for assessing construct validity withinthisresearchtradition.Assuch,confirmatoryfactoranalysis(SEMAMOS)isusedto assess construct validity for each firstorder multiitem factor associated with the second order factor model of relationship closeness (developed in 3.1), relationship goodness (developed in 3.1), and the causal antecedents to relationship closeness integrative and distributive supply management practices (developed in 3.2). Accordingly, exploratory factoranalysis(principalcomponentsanalysis)isusedtoestablishthevalidityofeachmulti item supply management practice (developed in 3.4.1) and operational benefit construct (developedin3.4.2). Forbothconfirmatoryandexploratoryapproaches,constructvalidity was systemically assessed through the sequential evaluation of the four interrelated components of construct validity: unidimensionality, reliability, convergent validity, and discriminantvalidity(GarverandMentzer,1999 OLearyKelly andVokurka,1998). The presentation of the analysis of construct validity proceeds in the following manner. In 5.3, the construct validity for each multiitem firstorder dimension of relationship closeness construct is assessed (trust, commitment, shared benefit, information sharing, and solidarity). Additionally, relationship closeness is assessed as a secondorder construct.Inthefollowingsection(5.4),thevalidityofrelationshipgoodnessisestablished. 5.5reportstheresultsoftestsofconstructvalidityforthedistributiveandintegrativesupply managementactivityconstructs. Thischapterconcludeswiththeassessmentofthevalidity of thesupplymanagementpractices(5.6)andoperationalbenefits(5.7) constructs.

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5.1

ExaminationofData

Thefollowingsubsectionsdescribetheproceduresthatwereusedtoscreenrespondentdata. 5.1.1 discusses the response rate and the heuristics used to manage missing data. 5.1.2 presentsanassessmentofnonresponse bias.Inthe final subsection(5.1.3),theunivariate normalityofeachindicatormeasurethatisusedtotesthypothesesdevelopedwithinChapter 3isevaluated. 5.1.1 ResponseRate An online survey was administered to 848 direct material suppliers to a focal automotive componentsmanufacturer. Fivehundredandthirtyninesuppliersrespondedwithrespectto 839exchangerelationships foragrossresponserateof63.6%(539/848). Missingdatawas assessedbyexaminingthepercentageofmissingdataforallindicatorsofeachdimensionof the relationship closeness secondorder construct, which serves as the basis for this study. The relationship closeness construct consists of six dimensions that are measured using 15 indicators. Two heuristics were used to derive the final sample observations were omitted from further consideration if (1) more than three of the 15 relationship closeness indicators aremissingand(2)anysingledimensionofrelationshipclosenessismissingmorethanone indicator. Application of these heuristics resulted in a final sample size of 425 exchange relationships between the automotive components manufacturer and 283 direct material suppliers. The effective response rate for the final sample, upon which the following statistical analyses are based, is 33.3% (283/848). For the 425 observations in the final sample,thepercentageofmissingdataforallindicatorsofrelationshipclosenessis1.9%(118 missingvaluesdividedbytheproductof425observationsand15variablesperobservation). Intotal,331observationshavenomissingrelationshipclosenessvalues74observationshave

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one missing relationship closeness value 16 observations have two missing relationship closeness values 4 observations have three missing relationship closeness values. The low percentageofmissingdatasuggestsaconservativeapproachtothestatisticalteststhatfollow (Tsikriktsis,2005). 5.1.2 NonresponseBias Tests of nonresponse bias attempt to assess the extent to which nonresponse impairs the validity of survey studies (Rosenthal and Rosnow, 1984, p. 217). Nonresponse bias was assessed by comparingresponsestoarandomly selectedsetof measurement items between participants who participated early and those that participated later in the survey administration process (Armstrong and Overton, 1977 Lambert and Harrington, 1990 Lessler and Kalsbeek, 1992). In this approach, late responders serve as a proxy for non respondentssuchthatthepotentialbiasattributabletononresponsemaybeassessed. Using April 30, 2004, as a cutoff date, the sample was separated into two groups: early and late responders. Twelvesurvey items,representingapproximately23%ofthe itemsusedtotest theoretical assertions (categorical and relative importance measures were omitted), were randomly selected and their values were compared across respondent groups. Additionally, two(transformed)demographicvariableswerecontrastedacrossgroups:(1)thelog(base10) ofsuppliers2003annualsalestotheautomotivecomponentsmanufacturer(LogSales)and (2) the log (base 10) of the length of the suppliers relationship with the automotive components manufacturer (Log Years). As reflected inTable 5.1,ttests contrasting means acrossearlyandlaterespondergroupsindicatenosignificantdifferencesacrossgroupsforthe randomlyselecteditemmeasuresandselectdemographicvariables(theabsolutevaluesofall tstatistics are less than the critical value of 1.97 for = .05). Thus, the null hypothesis,

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whichpositsthatnosignificantdifferencesexistbetweenearlyandlateresponders,cannotbe rejected. Theseresultssuggestthatnonresponsemaynotbiastheresultsofthisresearch.

Table5.1: Meancomparisonsofearlyversuslateresponders1
Item Identifier 2 BCPP4.1 BCPP6.1 BFR4.1 BFR5.1 BQCC2.31 BQCC3.11 BOCWR9.1 BOCWR13 OMCM1.11 OMCM1.81 OMTS2.31 OMTS2.81 LogSales LogYears
1 2

EarlyResponders N 157 166 170 155 167 167 169 169 167 154 164 159 147 146 Mean 2.43 2.51 2.08 1.79 3.54 2.06 3.04 4.19 3.09 2.88 2.69 3.45 6.59 1.05 Std Dev 1.002 1.055 1.204 .985 1.129 1.022 .957 1.286 1.212 1.212 1.186 1.320 .750 .386 N

LateResponders Mean 2.40 2.54 2.06 1.88 3.63 2.12 3.10 4.20 3.08 2.87 2.67 3.23 6.56 1.01 Std Dev .986 1.059 1.225 1.008 1.111 1.045 .849 1.295 1.067 1.238 1.202 1.300 .747 .344

tstatistic

105 109 112 104 111 113 112 112 112 106 109 107 95 97

.264 .225 .135 .723 .624 .510 .562 .102 .067 .616 .131 1.336 .278 .896

TtestofindependentsamplesusingSPSSv11.5.0 Itemsummary:BCPP4.1=flexibilitytomeetpriceobjectivesBCPP6.1=<<MFGR>>workson supplierssupplychain BFR4.1=<<MFGR>>concernofsuppliersprofitmargin BFR5.1=<<MFGR>>coverssunkcostsBQCC2.31=supplierfeelspressuretoimprovequality BQCC3.11=<<MFGR>>helpsimproveproductqualityBOCWR9.1=<<MFGR>>isfairin dealingsBOCWR13=<<MFGR>>isapreferredcustomerOMCM1.11=reducecostsby reducingoverengineeredspecificationsOCMC1.81= reducecostsbycommonizingvalidation processOMTS2.31=technologysharingbarrierlackofengineeringinterest OMTS2.81=technologysharingbarrierfearofbeingawardedproductionbusinessLogSales= Log(10)suppliers2003salesto<<MFGR>>LogYears=Log(10)lengthofsupply relationship (years)

Asnotedintheresponseratediscussion(5.1.1),datafromseveralsupplierfirmswas notincludedinthisstudyduetoexcessivemissingdata.Toassesstheeffectofomittingthese firmsfromthisstudy,themeansoftherandomlyselectedmeasurementitemslistedinTable 5.1werecontrastedacrosstwogroups:participantsand nonparticipants. Additionally,two

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(transformed)demographicvariableswerecontrastedacrossgroups: (1)thelog(base10)of suppliers2003annualsalestotheautomotivecomponentsmanufacturer(LogSales)and(2) thelog(base10)ofthelengthofthesuppliersrelationshipwiththeautomotivecomponents manufacturer (Log Years). The participants group includes only those responses that were deemed complete and that served as the basis for hypothesis testing. Conversely, the non participantsgroupconsistsofobservationdatafromsupplierswhoseresponsesweredeemed tooincompleteforinclusionin thisstudy.Usingindependentsamplettests,themeanofeach variable wascontrastedacrossthetwo groups.Asreported inTable5.2,ttestscontrasting meansacrossparticipantandnonparticipantgroupsindicatenosignificantdifferencesacross groupsfortherandomlyselecteditemmeasures(theabsolutevaluesofalltstatisticsareless than the critical value of 1.97 for = .05). However, both Log Sales and Log Years are significantlydifferentacrossparticipantandnonparticipantgroups.Together,thesefindings suggest thatthesupplierswhohavecompletedthesurvey infulltendto havehigherannual sales to the automotive components manufacturer and have maintained a longer supply relationship with the automotive components manufacturer as compared to those suppliers who did not fully complete the survey. This result is not completely unexpected those supplierswho maintain highersalesand longertermrelationshipswiththe focalautomotive components manufacturer may be more motivated to fully participate in a (lengthy) buyer supplier relationship survey, which has the stated goal of relationship assessment and improvement. However,onaverage,respondentswhocompletedthesurveyinfullprovided similarresponsesforitemsservingasconstructmeasuresasthosewhodidnotfullycomplete thequestionnaire.Assuch,thepotentialbiasassociatedwiththecasewisedeletionofselect

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responserecordshavingincompletedatamustbeconsideredwhengeneralizingtheresultsof thisstudy.

Table5.2: Meancomparisonsof nonparticipantsversusparticipants1

Item Identifier 2 BCPP4.1 BCPP6.1 BFR4.1 BFR5.1 BQCC2.31 BQCC3.11 BOCWR9.1 BOCWR13 OMCM1.11 O|MCM1.81 OMTS2.31 OMTS2.81 LogSales LogYears
1 2

Nonparticipants N 86 97 62 52 85 82 72 134 217 198 193 192 101 114 Mean 2.47 2.67 2.10 1.65 3.46 1.88 3.21 4.08 3.09 2.88 2.61 3.29 6.32 .924 Std Dev .954 1.125 1.197 .883 1.314 1.035 .992 .408 .309 1.199 1.233 1.317 .975 .390 N

Participants Mean 2.42 2.52 2.09 1.82 3.58 2.08 3.06 4.17 3.08 2.93 2.69 3.38 6.58 1.03 Std Dev .990 1.057 1.220 .985 1.124 1.030 .916 .417 .308 1.229 1.182 1.306 .749 .371

tstatistic

251 264 269 247 266 267 269 276 274 255 268 261 240 241

.382 1.154 .022 1.110 .782 1.570 1.203 .647 .110 .406 .740 .715 2.38 2.52

TtestofindependentsamplesusingSPSSv11.5.0 Itemsummary:BCPP4.1=flexibilitytomeetpriceobjectivesBCPP6.1=<<MFGR>>workson supplierssupplychain BFR4.1=<<MFGR>>concernofsuppliersprofitmargin BFR5.1=<<MFGR>>coverssunkcostsBQCC2.31=supplierfeelspressuretoimprovequality BQCC3.11=<<MFGR>>helpsimproveproductqualityBOCWR9.1=<<MFGR>>isfairin dealingsBOCWR13=<<MFGR>>isapreferredcustomerOMCM1.11=reducecostsby reducingoverengineeredspecificationsOCMC1.81= reducecostsbycommonizingvalidation processOMTS2.31=technologysharingbarrierlackofengineeringinterest OMTS2.81=technologysharingbarrierfearofbeingawardedproductionbusinessLogSales= Log(10)suppliers2003salesto<<MFGR>>LogYears=Log(10)lengthofsupply relationship(years)

5.1.3 UnivariateNormality TabachnikandFidell(2001,p.73)assertthatscreeningcontinuousvariablesfornormalityis animportantearlystepineverymultivariateanalysis,especiallywheninferenceisthegoal

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andsuggestseveralstatisticalandgraphicalapproachesthatmaybeusedtoassessunivariate normality, including assessment of skewness and kurtosis and evaluation of normal and detrended normal probability plots. Skewness and kurtosis refer the symmetry and

peakedness of the distribution of the response, respectively. Ideally, a normal distribution maintainsskewnessandkurtosisvaluesofzero.Foralargesample(N200),Tabachnikand Fidell (2001) suggest to assess the magnitude of skewness and kurtosis rather than the significance of these statistics the standard errors for skewness and kurtosis decrease as sample size grows, possibly resulting in significant statistics when there are only small deviations from normality (Tabachnik and Fidell, 2001, p. 74). Following this approach, skewnessandkurtosiswereevaluatedfor53ofthe60measurementitemsusedininference testing(categoricalandrelativeimportancemeasureswereomitted). Areviewofthelargest skewnessandkurtosisvaluesacrosstheitempoolindicatesthatonemeasurementitemhasa skewness value with a magnitude greater than one: bfr5.1 extent <<MFGR>> covers supplierssunkcosts(1.046)fivemeasurementitemshaveakurtosisvaluewithamagnitude greater than one: omts2.81 suppliers concern that it will not be awarded the business ( 1.074) , omts2.91 suppliers concern that idea will be used by <<MFGR>> (1.346), omts2.10 suppliers concern competitor will find out ideas (1.174), omcm1.61 commonize materials to reduce costs (1.112), and omcm1.71 standardize parts to reduce costs (1.096). Thus, the magnitude of the skewness and kurtosis values for each measurementitemiswellbelowthegenerallyacceptedthresholdof2. Univariatenormality was further assessed by examining normal and detrended normal probability plots for each measurement item (Tabachnik and Fidell, 2001, pp. 7476). In accordance with the recommendations of Tabachnik and Fidell (2001), the observations fall along the diagonal,

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running from lowerleft to upperright, within the normal probability plot for each measurement item. Additionally, detrended normal probability plots, which plot deviations from normality, show that observations are randomly distributed above and below a horizontallinepositionedatzero.Together,assessmentsof skewnessvalues,kurtosisvalues, normal probability plots, and detrended probability plots suggest that each of the 53 measurementitemsassessedisnormallydistributed. 5.2 SampleDemographics

This study collected several classification variables that facilitate the assessment of the samplesdemographics.Theseclassification variables include:supplierstotalannualsales, suppliersannualautomotivesales,supplierstotalannualsalestotheautomotivecomponents manufacturer (MFGR), percentage of total automotive sales to the automotive components manufacturer, suppliers research and development expense as a percentage of total annual automotivesales,numberofyearsthatthesupplierhassuppliedtheautomotivecomponents manufacturer, the suppliers headquarters location, and the commodity group that is associatedwitheachexchangerelationship. Areviewofthe sampledemographic variables suggests that each of the continuous measures is nonnormally distributed. As such, the empirical distribution of each classification variable is described in the frequency tables below. Respondentswereaskedtoreporttheirtotalannualsales,whichincludesautomotive and nonautomotive sales, for 2003. The average total annual sales revenue for the sample was approximately $1.2 billion. The median total annual sales revenue for the sample was between$50millionand$100million(seeTable5.3).Thedistributionoftotalannualsales isshowninTable5.3.

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Table5.3: Reportedtotalannualsales
TotalAnnualSales (automotive+nonautomotive) Lessthan$1,000,000 $1,000,000to$9,999,999 $10,000,000to$49,999,999 $50,000,000to$99,999,999 $100,000,000to$499,999,999 $500,000,000to$999,999,999 Greaterthan$999,999,999 Missing Total Frequency 4 23 93 35 42 15 34 37 283 Percentage Cumulative Percentage 1.4% 8.1% 32.9% 12.4% 14.8% 5.3% 12.0% 13.1% 100.0% 1.4% 9.5% 42.4% 54.8% 69.6% 74.9% 86.9% 100.0%

Respondentswereaskedtoreporttheirannualautomotivesalesfor2003.Theaverage annualautomotivesalesrevenueforthesamplewasapproximately$240million.Themedian annualautomotivesalesrevenueforthesamplewasbetween$10millionand$50million(see Table5.4).ThedistributionofannualautomotivesalesisshowninTable5.4.

Table5.4: Reportedannualautomotivesales
AnnualAutomotiveSales Lessthan$1,000,000 $1,000,000to$9,999,999 $10,000,000to$49,999,999 $50,000,000to$99,999,999 $100,000,000to$499,999,999 $500,000,000to$999,999,999 Greaterthan$999,999,999 Missing Total Frequency 2 38 101 20 44 14 12 52 283 Percentage Cumulative Percentage 0.7% 13.4% 35.7% 7.1% 15.5% 4.9% 4.2% 18.4% 100.0% 0.7% 14.1% 49.9% 57.0% 72.5% 77.4% 81.6% 100.0%

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Respondentswereaskedtoreporttheirannual worldwidesalestothefocalautomotive components manufacturer for 2003. The average annual sales revenue attributable to the focal automotive components manufacturer was approximately $12 million. The median annual sales tothe focal automotive components manufacturer was between $5 million and $10 million(seeTable5.5).Thedistributionofannual salestotheautomotivecomponents manufacturerisshowninTable5.5.

Table5.5: Reportedannualsalestotheautomotivecomponentsmanufacturer
AnnualAutomotiveSales Lessthan$100,000 $100,000to$499,999 $500,000 to$999,999 $1,000,000to$4,999,999 $5,000,000to$9,999,999 $10,000,000to$49,999,999 Greaterthan$49,999,999 Missing Total Frequency 7 24 15 70 53 63 10 41 283 Percentage 2.5% 8.5% 5.3% 24.7% 18.7% 22.3% 3.5% 14.5% 100.0% Cumulative Percentage 2.5% 11.0% 16.3% 41.0% 59.7% 82.0% 85.5% 100.0%

Respondentswereaskedtoreporttheirapproximateresearchanddevelopment(R&D) expenditures as a percent of annual automotive sales for 2003. The average research and development expense was approximately 4% of automotive sales. The median annual researchanddevelopmentexpensewasbetween2%and4%ofannualautomotivesales(see Table5.6).Thedistributionofresearchanddevelopmentexpenseasapercentofautomotive salesisshowninTable5.6.

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Table5.6: ReportedR&Dexpenseasapercentof annualautomotivesales

PercentR&D Expense Lessthan1.0% 1.0%to1.9% 2.0%to3.9% 4.0%to6.9% 7.0%to10.9% Greaterthan10.9% Missing Total Frequency 14 49 69 34 22 8 87 283 Percentage 4.9% 17.3% 24.4% 12.0% 7.8% 2.8% 30.7% 100.0% Cumulative Percentage 4.9% 22.2% 46.6% 58.6% 66.4% 69.2% 100.0%

Respondents were asked to report their sales to the focal automotive components manufacturerasapercentoftotalannualautomotivesalesfor2003. Theaveragesalestothe focal automotive components manufacturer were approximately 25% of annual automotive sales. The median annual sales to the focal automotive components manufacturer was between 10%and20%ofannualautomotivesales(seeTable5.7).Thedistribution ofannual automotivesalessoldto theautomotivecomponentsmanufacturerisshowninTable5.7.

Table5.7: Reported%of annualautomotivesalestoautomotivecomponentsmanufacturer

PercentAutomotive Salesto Manufacturer Lessthan1.0% 1.0%to4.9% 5.0%to9.9% 10.0%to19.9% 20.0%to29.9% 30.0%to49.9% Greaterthan49.9% Missing Total Frequency Percentage Cumulative Percentage 3.9% 17.0% 26.2% 41.7% 54.8% 65.8% 77.8% 100.0%

11 37 26 44 37 31 34 63 283

3.9% 13.1% 9.2% 15.5% 13.1% 11.0% 12.0% 22.3% 100.0%

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Respondents were asked to report the number of years that they have maintained a supplyrelationshipwiththefocalautomotivecomponentsmanufacturer. Theaveragelength ofsupply relationship is 14 years. The median length of supply relationship withthe focal automotive components manufacturer was between 10 and 15 years (see Table 5.8). The distribution of length of supply relationship with the focal automotive components manufacturerisshowninTable5.8.

Table5.8: Reportedlengthofsupplyrelationship
LengthofSupply Relationship(years) 1.0to4.9 5.0to9.9 10.0to14.9 15.0to24.9 Greaterthan24.9 Missing Total Frequency 36 55 41 63 48 40 283 Percentage 12.7% 19.4% 14.5% 22.3% 17.0% 14.1% 100.0% Cumulative Percentage 12.7% 32.1% 46.6% 68.9% 85.9% 100.0%

Respondents were asked toreportthe location of their companys headquarters. As notedinTable5.9,themajorityoftheautomotivecomponentsmanufacturersdirectmaterial suppliers that participated in this study maintained headquarters in the United States of America. Additionally, suppliers with headquarters in Western Europe and Asia are well represented. Respondents were asked to answer each survey question with respect to a particular commoditysuppliedtoaspecificdivisionoftheautomotivecomponentsmanufacturer.Table 5.10showstheextenttowhichreportedbuyersupplierrelationshipswereassociatedwiththe exchangeofmechanical,electrical,andchemicaldirectmaterials.

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Table5.9: Supplierheadquarterlocationsby region

Region UnitedStated WesternEurope Asia Canada Eastern Europe SouthAmerica Mexico Other/missing Total Frequency 148 54 42 6 3 3 2 25 283 Percentage 52.3% 19.1% 14.8% 2.1% 1.1% 1.1% 0.7% 8.8% 100.0% Cumulative Percentage 52.3% 71.4% 86.2% 88.3% 89.4% 90.5% 91.2% 100.0%

Table5.10: Commoditygroups
Region Mechanical Electrical Chemical Total Frequency 177 146 102 425 Percentage 41.6% 34.4% 24.0% 100.0% Cumulative Percentage 41.6% 76.0% 100.0%

5.3

BuyerSupplierRelationshipClosenessConstructValidation

Testsofconstructvalidityinvolvetheassessmentoftheextenttowhichmeasurementitems actually measure what they are supposed to measure (Churchill, 1979 Rosenthal and Rosnow, 1991). Garver and Mentzer (1999) cite several dimensions of construct validity unidimensionality, reliability, convergent validity, discriminant validity, and predictive validityandoutlinestatisticalprocedurestoassessconstructvalidityusingstructuralequation modelingtechniques. UsingtheGarverandMentzer(1999)approach,constructvaliditywas

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assessed for five of the firstorder factors (i.e., information sharing, trust, solidarity, commitment,andsharedbenefit)thatcomposetherelationshipclosenessconstruct. Thesixth dimension,flexibility,wasmeasuredwithasingleitemsubsequently,flexibilitywasomitted fromthedevelopmentofthesecondorderfactormodel. 5.3.1 Unidimensionality GarverandMentzer(1999,p.35)defineunidimensionalityastheexistenceofoneconstruct underlying a set of items and describe unidimensionality as the degree to which a set of itemsrepresentsoneandonlyoneconstruct. ReviewingthepreviousresearchofAnderson andGerbing(1988)andothers,GarverandMentzer(1999, p. 40)concludethatconfirmatory factor analysis is a more rigorous and precise test of unidimensionality as compared to traditional techniques such as exploratory factoranalysis (EFA). Similarly, Anderson and Gerbing(1988)contendthatconfirmatory factoranalysisaffordsa stricter interpretationof unidimensionalitythancanbeprovidedbymoretraditionalmethodssuchascoefficientalpha, itemtotal correlations, and exploratory factor analysis and thus generally will provide differentconclusionsabouttheacceptabilityofthescales. GarverandMentzer(1999)suggestthattheinitialstepinassessingunidimensionality involves independently testing each latent variable with its intended indicators. Unidimensionality is initially evidenced if (1) each factor loading maintains the anticipated sign,(2)themagnitudeofeachstandardizedfactorloadingisgreaterthanorequalto0.7( 0.7), (3) the loading of each factor loading is significant (at 0.05), and (4) the measurementmodelmaintainsacceptablefit(GarverandMentzer,1999). Zhangetal.(2003, p.184)usefivegoodnessoffitmeasurestoassessmodelfit:(1)normedfitindex(NFI),(2) comparativefitindex (CFI),(3)rootmeansquareerrorofapproximation(RMSEA)index,(4)

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2 chisquare (X ), and (5) the ratio of chisquare to degrees of freedom. Citing previous

literature,Zhangetal.(2003)aguethatNFIand CFI values between0.80and0.89 indicate reasonablefitandscoresof0.90orgreaterprovideevidenceofgoodfitRMSEAvalues between 0.05 and 0.08 indicate acceptable fit a nonsignificant chisquare statistic is ideal andachisquaretodegreesoffreedomratiothatislessthan3indicatesreasonablefit(Zhang, Vonderembse,andLim,2003). Following the Garver and Mentzer (1999) approach, the unidimensionality of each multiitemfirstorderfactorthatcomprisestherelationshipclosenessconstructwasassessed. Figures5.1,5.2,5.3,5.4,and5.5depictthediagrammaticalrepresentationofeachfirstorder factoranditsintendedmeasuresTables5.11,5.12,5.13,5.14,and5.15presentstandardized factor loadings and model fit statistics for each singlefactor model. A review of the standardized path coefficients for information sharing, trust, solidarity, and commitment shows that all loadings are in the expected direction, most standardized loadings (with the exceptionofbfr3.1andbocwr8.1)aregreaterthan0.7,andallloadingsaresignificantatthe 0.001level.Asthesemeasurementmodelsarejustidentified(df=0),modelfitcouldnot beassessed.Sharedbenefitwasoperationalizedusingtwoindicators,whichpreventstheuse of confirmatory factor analysis (underidentified model) principal components analysis suggeststhatthetwoindicatorsarehighlycorrelated(seeTable5.15).Overall,resultsfrom withinblock confirmatory factor analysis provide initial support for unidimensionality. Additionally, results from Principal Components Analysis (see Appendix A, Tables A.1 throughA.5)furthersuggesttheunidimensionalityofeachconstruct.

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Figure5.1:Measurementmodelforinformationsharing

omc4.11

e1 e2 e3

Information Sharing

omc4.21 omc4.31

Table5.11: Standardizedpathloadingsforinformationsharingb
Identifier Item Standardized Loading .915 .957 .914 tvalue 23.92c 25.86c 23.88c

omc4.11 Yourfirmcommunicatesopenly/honestlyaboutquality problemsa omc4.21 Yourfirmcommunicatesopenly/honestlyaboutdelivery problemsa omc4.31 Yourfirmcommunicatesopenly/honestlyaboutlaunch problemsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=409,df=0, =N/A,NFI= N/A,CFI= N/A,RMSEA= N/A p< .001

Figure5.2: Measurementmodelfortrust

bocwr1.1

e1 e2 e3

Trust

bocwr4.1 bocwr9.1

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Table5.12: Standardizedpathloadingsfortrustb
Identifier Item Standardized Loading .741 .841 .812 tvalue 16.36c 19.04c 18.23c

bocwr1.1 <<MFGR>>treatsyourfirmasvaluedsupplier a bocwr4.1 Yourfirmtrusts<<MFGR>>a bocwr9.1 <<MFGR>>isfairinitsdealingsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=421,df=0, =N/A,NFI= N/A,CFI= N/A,RMSEA= N/A p<.001

Figure5.3:Measurementmodelforsolidarity

bfr3.1

e1 e2 e3

Solidarity

bfr4.1 bfr5.1

Table5.13: Standardizedpathloadingsforsolidarityb
Identifier bfr3.1 bfr4.1 bfr5.1
a b c

Item Given<<MFGR>>sexpectations,yourfirmsabilityto makeacceptablelongtermreturna <<MFGR>>sconcernforyourfirmsprofitmarginsa <<MFGR>>coverssunkcostswhennewprogramsare delayed,cancelled,orhavelowervolumesa

Standardized Loading .568 .749 .711

tvalue 10.17c 12.67c 12.18c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=385,df=0, =N/A,NFI= N/A,CFI= N/A,RMSEA= N/A p<.001

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Figure5.4: Measurementmodelforcommitment

bocwr2.1

e1 e2 e3

Commitment

bocwr3.1 bocwr8.1

Table5.14: Standardizedpathloadingsforcommitmentb
Identifier Item Standardized Loading .541 .736 .930 tvalue 10.83c 14.46c 17.93c

bocwr8.1 <<MFGR>>recognizesyourfirmssupporta bocwr2.1 <<MFGR>>honorscontractualcommitmentsa bocwr3.1 <<MFGR>>livesuptospiritofcommitmentsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=415,df=0, =N/A,NFI= N/A,CFI= N/A,RMSEA= N/A p<.001

Figure5.5: Measurementmodelforsharedbenefit

bfr1.11

Shared Benefit

bfr1.21

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Table5.15:Factorloadingsforsharedbenefit b
Identifier bfr1.11 bfr1.21
a b

Item <<MFGR>>sharessavingsthatreducepricea <<MFGR>>sharessavingsthatreduce/avoidcosts

a

Factor Loading .963 .963

tvalue

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=409

5.3.2 Reliability Scale reliability refers to the internal consistency of a scale to measure a latent construct andinvolvestheassessmentofrepeatability,ratherthanaccuracy,ofameasure(Garverand Mentzer, 1999, p. 35). OLearyKelly and Vokurka (1998, p. 394) note that reliability is inverselyrelatedtothedegreetowhichameasureiscontaminatedbyrandomerrorandcite Cronbachsalphacoefficientasapopularmeasureofinternalconsistency. Cronbachsalpha coefficientrangesfromzerotoone,withvaluesclosertooneindicatinghigherrepeatabilitya minimumvalueof0.7isconsideredacceptableforexistingscalesandalowerboundof0.6is appropriatefornewlydevelopedscales(Nunnally,1967).Tables5.16,5.17,5.18,5.19,and 5.20 list the values for Cronbachs alpha coefficient for each dimension of relationship closeness. As noted within the aforementioned tables, Cronbachs alpha coefficients range from.71to.95,suggestingacceptablescalereliabilityforeachfirstorderfactor. Thealphaifitemdeletedvaluesprovideadditionalinsightintothereliabilityofeach construct. Thisvalueindicatestheimprovementinconstructreliabilitythatwouldberealized ifthemeasurementitemwasdeleted.Potentiallyproblematicitemsaresuggestedbyalphaif itemdeletedvaluesgreaterthantheconstructwisecoefficientalpha. Tables5.16,5.17,5.18, 5.19,and5.20 listthe valuesalphaifitemdeleted foreach item. Thealphaifitemdeleted

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valueforbocwr8.1suggeststhatthescalereliabilityofthecommitmentfirstorderfactormay be improved by eliminating this item however, this item is retained in orderto supportthe operationalizationoftheconstruct. Allotheralphaifitemdeletedvaluessuggestthatthese measures significantly contribute to scale reliability. Similar insights are gained by

examiningtheitemtototalcorrelationvaluesforeachindicator.

Table5.16: Reliabilitystatisticsforinformationsharinga
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .8842 .9135 .8832 .9333 .9492 .9495 .9104 .9334

omc4.11 Yourfirmcommunicatesopenly/honestlyabout qualityproblems omc4.21 Yourfirmcommunicatesopenly/honestlyabout deliveryproblems omc4.31 Yourfirmcommunicatesopenly/honestlyabout launch problems
a

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.17: Reliabilitystatisticsfortrusta
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .6677 .7502 .7156 .8007 .8357 .8395 .7502 .7614

bocwr1.1 <<MFGR>>treatsyourfirmasvaluedsupplier bocwr4.1 Yourfirmtrusts<<MFGR>> bocwr9.1 <<MFGR>>isfairinitsdealings

a

EstimatedusingSPSSv11.5.0reliabilityanalysis

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Table5.18: Reliabilitystatisticsforsolidaritya
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .4744 .5733 .5629 .6847 .7102 .7141 .5754 .5837

bfr3.1 bfr4.1 bfr5.1

Given<<MFGR>>sexpectations,yourfirms abilitytomakeacceptablelongtermreturn <<MFGR>>sconcernforyourfirmsprofit margins <<MFGR>>coverssunkcostswhennew programsaredelayed,cancelled,orhavelower volumes

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.19:Reliabilitystatisticsforcommitment a
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .4893 .6276 .7177 .8104 .7714 .7715 .6706 .5669

bocwr8.1 <<MFGR>>recognizesyourfirmssupport bocwr2.1 <<MFGR>>honorscontractualcommitments bocwr3.1 <<MFGR>>livesuptospiritofcommitments

a

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.20:
Identifier

Reliabilitystatisticsforsharedbenefit a
Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .8538 .8538 .9208 .9211

bfr1.11 <<MFGR>>sharessavingsthatreduceprice bfr1.21 <<MFGR>>sharessavingsthatreduce/avoidcosts

a

EstimatedusingSPSSv11.5.0reliabilityanalysis

162

5.3.3 ConvergentandDiscriminantValidity Campbell and Fiske (1959) proposed two kinds of constructvalidation evidence: (1) the assessment of the extent to which different measures or manipulations of the same trait or behaviorconvergeand(2)theassessmentoftheextenttowhichmeasuresormanipulations ofrelatedbutconceptuallydistinctbehaviorsortraitsdiverge(RosnowandRosenthal,1991, p.61). Similarly,CookandCampbell(1979,p.61)arguethat assessing constructvalidity depends on two processes: first, testing for convergence across different measures or manipulationofthesamethingandsecond,testingforadivergencebetweenmeasuresand manipulationsofrelatedbutconceptuallydifferentthings. Onceinitialunidimensionality forindividualconstructmeasuresisestablished,GarverandMentzer(1999)suggestpairwise and fullmodel confirmatory factor analysis. In pairwise confirmatory factor analysis, convergent and discriminant validity may be assessed across indicators for two latent constructs,simultaneously.Fullmodelconfirmatory factoranalysis impliesthe inclusionof allrelevantlatentconstructs,andtheirmeasures,withinthemeasurementmodel.Consistent withinitialtestsofunidimensionality,convergentvalidityisevidencedwhen:(1)eachfactor loadingmaintainstheanticipatedsign,(2)themagnitudeofeachstandardizedfactorloading isgreaterthanorequalto0.7(0.7),(3)theloadingofeachfactorloadingissignificant(at 0.05), and (4) the measurement model maintains acceptable fit (Garver and Mentzer, 1999). Discriminantvalidity may beassessedatthe measurement levelandconstructlevel. Atthemeasurementlevel,discriminantvalidityisassessedbyexaminingthesignificanceof potentialcrossloadings betweenmeasurementitemsandunintendedconstructs.Garverand Mentzer (1999, p. 42) suggest that threats to discriminant validity are indicated by cross loadings having modification indices that are greater than 7.88. Based on the approach

163

developed by Anderson and Gerbing (1988), Garver and Mentzer (1999) advocate the assessment of discriminant validity at the construct level by systematically constraining individual correlationsbetweenconstructswithinthefullmeasurementmodel(asdiscussedin 4.5.1). Threats to discriminant validity are indicated by a nonsignificant change in chi squareforeachconstrained(nested)model. FollowingtherecommendationsofGarverandMentzer(1999),eachmultiitemfirst order factorthat composes relationship closeness was subjected to pairwise and fullmodel confirmatoryfactoranalyses. Figures5.6,5.7,5.8,5.9,5.10,and5.11presentdiagrammatical representations for each pairwise measurement model. Consistent with initial

unidimensionality analyses, pairwise confirmatory factor analyses yielded factor loadings that (1) have the anticipated sign, (2) are significant at the 0.001 level, and (3) are of similar magnitudes as those presented in Tables 5.11, 5.12, 5.13, 5.14, and 5.15. As such, claimsofconvergentvalidityaresupported. Initially, itemlevel discriminant validity was assessed using pairwise confirmatory factoranalysis.Tables5.21,5.22,5.23,5.24,5.25,and5.26presentthemodificationindices foreachcorrespondingpairwisemeasurementmodel.AssuggestedbyGarverandMentzer (1999), each table was inspected for modification indices that suggest a substantive cross loading between a latent construct and an unintended measurement item. A review of the pairwisemodificationindicessuggeststhepresenceofasinglecrossloading(seeTable5.26) betweensolidarityand bocwr8.1,which isassignedtocommitment.Allother modification indicesassociatedwithpotentialcrossloadingsarelessthanthe7.88cutoffrecommendedby GarverandMentzer(1999).

164

A review of the model fit indices for the trustcommitment and trustsolidarity pairs indicates that the commitment may pose a threat to the validity of the secondorder factor model. As noted inthe footnotesofTables5.25and5.26,thechisquarevalue foreachof
2 2 these models is significant (trustcommitment: X = 76.18 and trustsolidarity: X = 40.76)

Formodelswithlowdegreesoffreedom,thisfindingmaysuggestpoormodelfit. Similarly, theRMSEAvalueforeachmodelindicatespoorfit(trustcommitment:RMSEA =0.157and trustsolidarity:RMSEA=0.109).

Figure5.6: Measurementmodelforinformationsharingandtrust

omc4.11

e1 e2 e3

Information Sharing

omc4.21 omc4.31

bocwr1.1

e11 e12 e13

Trust

bocwr4.1 bocwr9.1

165

Table5.21:Modificationindicesforinformationsharingandtrusta,b
Items bocwr1.1 bocwr1.1 bocwr4.1 bocwr4.1 bocwr9.1 bocwr9.1 omc4.31 omc4.31 omc4.21 omc4.21 omc4.11 omc4.11
a b

Factors Trust InformationSharing Trust InformationSharing Trust InformationSharing Trust InformationSharing Trust InformationSharing Trust InformationSharing
2

Modification Indices .000 .106 .000 .301 .000 .807 .174 .000 .754 .000 1.670 .000

Modelfitstatistics:n=348,df=8, =4.9(p=.768), NFI=.997,CFI=1.000,RMSEA=0.000 Interfactorcorrelation=.383(p<.001)

Figure5.7: Measurementmodelforinformationsharingandsolidarity

omc4.11

e1 e2 e3

Information Sharing

omc4.21 omc4.31

bfr3.1

e11 e12 e13

Solidarity

bfr4.1 bfr5.1

166

Table5.22: Modificationindicesforinformationsharingandsolidaritya,b
Items bfr3.1 bfr3.1 bfr4.1 bfr4.1 bfr5.1 bfr5.1 omc4.31 omc4.31 omc4.21 omc4.21 omc4.11 omc4.11
a b

Factors Solidarity InformationSharing Solidarity InformationSharing Solidarity InformationSharing Solidarity InformationSharing Solidarity InformationSharing Solidarity InformationSharing

Modification Indices .000 2.441 .000 .570 .000 4.788 .936 .000 .182 .000 .273 .000

2 Modelfitstatistics:n=348,df=8, =15.5 (p=.050), NFI=.989,CFI=.995,RMSEA=0.052 Interfactorcorrelation=.200 (p<.001)

Figure5.8 Measurementmodelforinformationsharingandcommitment

omc4.11

e1 e2 e3

Information Sharing

omc4.21 omc4.31

bocwr2.1

e11 e12 e13

Commitment

bocwr3.1 bocwr8.1

167

Table5.23: Modificationindicesforinformationsharingandcommitmenta,b
Item bocwr2.1 bocwr2.1 bocwr3.1 bocwr3.1 bocwr8.1 bocwr8.1 omc4.31 omc4.31 omc4.21 omc4.21 omc4.11 omc4.11
a b

Factor Commitment InformationSharing Commitment InformationSharing Commitment InformationSharing Commitment InformationSharing Commitment InformationSharing Commitment InformationSharing
2

Modification Indices .000 .007 .000 .851 .000 3.527 .615 .000 .727 .000 .011 .000

Modelfitstatistics:n=348,df=8, =7.13(p=.523), NFI=.995,CFI=1.000,RMSEA=0.000 Interfactorcorrelation=.345(p<.001)

Figure5.9: Measurementmodelfortrustandsolidarity

bocwr1.1

e1 e2 e3

Trust

bocwr4.1 bocwr9.1

bfr3.1

e11 e12 e13

Solidarity

bfr4.1 bfr5.1

168

Table5.24: Modificationindicesfortrustandsolidaritya,b
Items bfr3.1 bfr3.1 bfr4.1 bfr4.1 bfr5.1 bfr5.1 bocwr9.1 bocwr9.1 bocwr4.1 bocwr4.1 bocwr1.1 bocwr1.1
a b

Factors Solidarity Trust Solidarity Trust Solidarity Trust Solidarity Trust Solidarity Trust Solidarity Trust

Modification Indices .000 2.236 .000 .157 .000 .836 .036 .000 .097 .000 .029 .000
2

Modelfitstatistics:n=348,df=8, =13.91 (p=.084),NFI=.984,CFI=.993,RMSEA=0.046 Interfactorcorrelation=.668(p<.001)

Figure5.10: Measurementmodelfortrustandcommitment

bocwr1.1

e1 e2 e3

Trust

bocwr4.1 bocwr9.1

bocwr2.1

e11 e12 e13

Commitment

bocwr3.1 bocwr8.1

169

Table5.25:Modificationindicesfortrustandcommitmenta,b
Items bocwr2.1 bocwr2.1 bocwr3.1 bocwr3.1 bocwr8.1 bocwr8.1 bocwr9.1 bocwr9.1 bocwr4.1 bocwr4.1 bocwr1.1 bocwr1.1
a b

Factors Commitment Trust Commitment Trust Commitment Trust Commitment Trust Commitment Trust Commitment Trust

Modification Indices .000 .049 .000 .016 .000 .144 .001 .000 .001 .000 .006 .000
2

Modelfitstatistics:n=348,df=8, =76.18 (p<.001),NFI=.938,CFI=.944,RMSEA=0.157 Interfactorcorrelation=.973(p<.001)

Figure5.11: Measurementmodelforsolidarityandcommitment

bfr3.1

e1 e2 e3

Solidarity

bfr4.1 bfr5.1

bocwr2.1

e11 e12 e13

Commitment

bocwr3.1 bocwr8.1

170

Table5.26: Modificationindicesforsolidarityandcommitmenta,b
Items bocwr2.1 bocwr2.1 bocwr3.1 bocwr3.1 bocwr8.1 bocwr8.1 bfr5.1 bfr5.1 bfr4.1 bfr4.1 bfr3.1 bfr3.1
a b

Factors Commitment Solidarity Commitment Solidarity Commitment Solidarity Commitment Solidarity Commitment Solidarity Commitment Solidarity
2

Modification Indices .000 1.916 .000 1.544 .000 16.247 .255 .000 .728 .000 2.708 .000

Modelfitstatistics:n=348,df=8, =40.76(p<.001), NFI=.940,CFI=.951,RMSEA=0.109 Interfactorcorrelation=.588 (p<.001)

Figure5.12providesadiagrammaticalrepresentationofthe fullmeasurement model that includes each multiitem firstorder factor that composes the relationship closeness secondorder construct. The fullmeasurement model consists of five firstorder factors (information sharing, trust, solidarity, commitment, and shared benefit) and their corresponding14measurementitems. Table5.31providesthemean,standarddeviation,and correlation for each item included in the full measurement model. Acceptable model fit is indicatedby severalgoodnessof fit measures(seeTable5.28,footnote1)theCFIandNFI aregreaterthan0.9andRMSEAislessthan0.8(Zhangetal.,2003).Additionally,allinter factorcorrelations(seeTable5.28)andfactorloadingsaresignificantatthe0.001level. Table5.27providesareviewofthemodificationindicesassociatedwitheachpotentialcross

171

loading.Asevidencedwithinthistable,themodificationindicessuggesttheabsenceofany significantcrossloadingsandsupportinitial claimsofdiscriminantvalidity. Constructleveldiscriminantvaliditywasassessedusingthe full factormodelshown inFigure5.12.Usinganiterativeprocess,discriminantvaliditywasevaluatedforeachpair offactorswithinthefullmodel(AndersonandGerbing,1988).Foreachpairoffactors,the associated correlation (standardized covariance) was constrained to one and the chisquare statistic associated with the constrained model was compared to the chisquare statistic of
2 unconstrained model (X (df=67) = 165.79). Table 5.29 reports the chisquare value for each

constrainedmodel,thecorrespondingchisquaredifferencevalue,andthepvalueassociated with the chisquare difference test. With the exception of the trustcommitment pair, each chisquare difference value is significant (p < .05) this result suggests that information sharing,shared benefit,andsolidarity, whichare conceptuallyrelatedconstructs,are indeed distinct(Cook andCampbell,1979). The threat to discriminant validity imposed by the high and significant correlation betweentrustandcommitmentsuggeststhatoneoftheseconstructsshouldbedroppedfrom the measurement model. From a theoretical perspective, previous research advocates the importance of both constructs to the study of buyersupplier relationship closeness (Benton and Maloni,2005Maloniand Benton,2000MohrandSpekman,1994MorganandHunt, 1994). Empirical evidence from Tables 5.25 and 5.26 suggests that the inclusion of the commitment construct compromises model fit within the trustcommitment and solidarity commitment pairwise measurement models. As such, the commitment construct was droppedfromthesecondorderfactormodel.

172

Subsequently, the revised full measurement model, which consists of information sharing,trust,solidarity,sharedbenefit,andtheirassociateditemmeasures,wasreevaluated. Table 5.30 reports the interfactor correlations and model fit statistics for the revised measurement model that was estimated using the full dataset (n=425), maximum likelihood estimation, and estimation of means and intercepts to compensate for missing data (Byrne, 2001). Asnotedinthetable,thecorrelationsbetweenconstructsareallsignificant(p<.001).
2 Asidefromthesignificantchisquarevalue(X =76.24,p<.001),themodelfitstatisticsfor

therevisedmeasurementmodelgenerallyindicategood(Zhangetal.,2003)modelfit:(1) ratioofchisquaretodegreesof freedom=2.01,(2)NFI=0.973,(3)CFI=0.986,and(4) RMSEA = 0.049. As evidenced by the demonstrated unidimensionality, reliability, convergent validity, and discriminant validity, the information sharing, trust, solidarity, and sharedbenefitconstructsaredeemedvalid.

173

Figure5.12: Fullmeasurementmodelforfirstorderfactors

omc4.11

e1 e2 e3

Information Sharing

omc4.21 omc4.31

bocwr1.1

e11 e12 e13

Trust

bocwr4.1 bocwr9.1

bfr3.1

e21 e22 e23

Solidarity

bfr4.1 bfr5.1

bocwr2.1

e31 e32 e33

Commitment

bocwr3.1 bocwr8.1

bfr1.11

e41 e42

Shared Benefit

bfr1.21

174

Table5.27: Modificationindicesforfullmeasurementmodel
Items Information Sharing Information Sharing omc4.11 omc4.21 omc4.31 Solidarity bfr1.11 bfr1.21 Commitment bocwr2.1 bocwr3.1 bocwr8.1 Solidarity bfr3.1 bfr4.1 bfr5.1 Trust bocwr1.1 bocwr4.1 bocwr9.1 Shared Benefit Factors Commitment Solidarity Trust

.000 .000 .000 1.081 1.043 .002 .031 .031 1.873 .590 4.670 .042 .323 .692

.255 1.263 .423 .000 .000 4.570 .007 3.035 2.927 .087 1.609 .034 .000 .029

.623 .145 .167 .229 .220 .000 .000 .000 2.356 .260 .734 .003 .001 .000

.016 .467 .697 .325 .314 1.505 .785 4.471 .000 .000 .000 .134 .135 .012

.700 .178 .172 .315 .304 .001 .008 .007 2.052 .194 .707 .000 .000 .000

175

Table5.28: Firstorderfactorcorrelationsforfullmeasurementmodela
Information Sharing Information Sharing Shared Benefit Commitment Solidarity Trust
a b

Shared Benefit

Commitment

Solidarity

Trust

1 .208 .376 .204 .382 1 .459 .395 .401 1 .656 .985 1 .669 1

Allcorrelationssignificantatp<.001 2 Modelfitstatistics:n=348,df=67, =165.79,NFI=.951,CFI=.970,RMSEA=.065

Table5.29:Firstorderfactordiscriminantvalidityanalysisa
ConstrainedPath Informationsharingto SharedBenefit Informationsharingto Commitment Informationsharingto Solidarity Informationsharingto Trust SharedBenefitto Commitment SharedBenefitto Solidarity SharedBenefittoTrust CommitmenttoSolidarity Commitmenttotrust Solidaritytotrust
a

2 (df=68)

2 (df=1)

pvalue p<.05 p<.05 p<.05 p<.05 p<.05 p<.05 p<.05 p<.05 p>.05 p<.05

617.77 392.47 380.97 591.25 366.55 348.92 574.45 243.92 166.31 260.86

451.98 266.68 215.18 425.46 200.76 183.13 408.66 78.13 0.52 95.07

Correlationoftheconstrainedpathissetto1.

176

Table5.30: Firstorderfactorcorrelationsforrevisedfullmeasurementmodela
Information Sharing Information Sharing Shared Benefit Solidarity Trust
a b

Shared Benefit

Solidarity

Trust

1 .219 .207 .377 1 .415 .378 1 .675 1

Allcorrelationssignificantatp<.001 2 Modelfitstatistics:n=425,df=38, =76.24(p<.001),NFI=.973,CFI=.986, RMSEA=.049

Table5.31: Descriptivestatisticsforitemswithinthefullmeasurementmodela
RowType Item omc4.11 omc4.21 omc4.31 bocwr1.1 bocwr4.1 bocwr9.1 bfr3.1 1 0.88454 1 1 0.2708 1 1

Correlation omc4.11 Correlation omc4.21 Correlation omc4.31 Correlation bocwr1.1 Correlation bocwr4.1 Correlation bocwr9.1 Correlation bfr3.1 Correlation bfr4.1 Correlation bfr5.1 Correlation bocwr2.1 Correlation bocwr3.1 Correlation bocwr8.1 Correlation bfr1.11 Correlation bfr1.21 N Std.Dev. Mean
a

0.87753 0.88253 0.27974 0.25893

0.3181 0.29259 0.29059 0.67747

0.34223 0.30359 0.30762 0.63408 0.71068 1 0.17574 0.14452 0.20536 0.42445 0.41167 0.41366 1 0.15668 0.17401 0.17051 0.36945 0.42255 0.43062 0.47348 0.05215 0.05528 0.07267 0.34231 0.37308 0.32637 0.4325 0.23961 0.24525 0.23034 0.45302 0.57759 0.54439 0.30316 0.27191 0.29377 0.26111 0.53997 0.71054 0.63016 0.37779 0.27079 0.26236 0.25831 0.65129 0.5999 0.6163 0.39814 0.17482 0.14565 0.17133 0.29526 0.32608 0.33364 0.30763 0.20047 0.18248 0.20676 0.26807 0.32299 0.29199 0.2976 348 348 348 348 348 348 348 1.0659 1.04509 1.03294 0.96246 1.13161 0.92045 0.92708 3.74425 3.83046 3.75575 3.04023 3.06897 3.00575 2.75575

EstimatedusingSPSSv11.5.0bivariatecorrelationwithlistwisedeletion

177

Table5.31continued:
RowType Item bfr4.1 1 0.55656 bfr5.1 bocwr2.1 bocwr3.1 bocwr8.1 bfr1.11 bfr1.21 1 1 1 1 348

Correlationbfr4.1 Correlationbfr5.1 Correlationbocwr2.1 Correlationbocwr3.1 Correlationbocwr8.1 Correlationbfr1.11 Correlationbfr1.21 N Std.Dev. Mean

0.26587 0.24593

0.33221 0.32908 0.67052 1 0.42772 0.39316 0.41372 0.51726

0.28727 0.1928 0.19635 0.33873 0.36562 1 0.25277 0.22329 0.21228 0.34414 0.37404 0.85893 348 348 348 348 348 348

1.1842 0.98154 1.1362 1.03781 1.0143 1.11843 1.10957 2.06322 1.84195 3.22126 3.06034 2.66954 2.40805 2.26149

5.3.4 SecondOrderConstruct Results from the preceding assessment of construct validity for four of the dimensions of relationshipclosenessvalidatetheoperationalizationofinformationsharing,trust,solidarity, andsharedbenefit.Additionally,the significantcorrelations betweeneach firstorderfactor (see Table 5.30) suggest that relationship closeness may be appropriately represented as a secondorder construct consisting of the four aforementioned firstorder constructs. Following the approach outlined in Byrne (2001, pp. 120141), relationship closeness was modeled as a secondorder construct. As such, the relationship closeness construct was modeled as a fourdimensional secondorder factor consisting of the following firstorder factors:informationsharing(3items),trust(3items),solidarity(3items),andsharedbenefit (2items). ThediagrammaticalrepresentationofthissecondorderfactorisprovidedinFigure 5.13.

178

Table 5.32 (footnote a) lists the model fit indices forthe secondorder factor model.
2 Thesignificantchisquarevalue( =87.05,p<.001)suggestspoormodelfithowever,this

finding may be attributable to the large sample size (Bentler and Bonnet, 1980). With the exception of the chisquare statistic, all other measures of goodness of fit (NFI=.969,
2 CFI=.983, RMSEA=.053, /df=2.18) suggest good fit (Zhang et al., 2003). Additionally,

Table5.32showsthatallpathcoefficientsarepositive(asexpected)andhighlysignificant(p < .001). The secondorder factor (relationship closeness) to firstorder factor (information sharing,trust,solidarity,andsharedbenefit)standardizedpathcoefficientsrangefrom.392to .929twocoefficientsarelowerthantherecommendedcutoffof0.7.However,thesevalues comparefavorablywithfindingsfrompreviousresearch.Inastudyofasecondorderfactor modelofpurchasing competence,Narasimhan etal.(2001)reporthigherorderstandardized pathcoefficientsrangingfrom0.284to0.779. Stewart and Segars (2002) suggest that the appropriateness of a secondorder factor modelmaybeassessedbyexaminingtherelativefitofalternatefactorstructures.Following theexampleofStewartandSegars(2002),measuresoffitwerecomparedforthreemodels: (1)the(baseline) measurement modelwhichconsistsof four firstorderfactors,(2)asingle firstorder factor with all measurement items reflectively mapped to it, and (3) the second order factor model. To perform this analysis, all three alternative models were estimated usingthefulldataset(n=425),maximumlikelihoodestimation,andestimationofmeansand intercepts to compensate for missing data (Byrne, 2001). Table 5.33 lists the model fit statisticsforallthreealternatemodels.AsnotedinTable5.33,themodelfitofthesecond order factor model (Model 3) is much stronger than that of the one firstorder factor model (Model 2). Additionally, when contrasting the secondorder factor model (Model 3) to the

179

firstorder factor model, the secondorder factor model is slightly more parsimonious and incursarelativelylowlossoffit.MarshandHocevar(1985)suggestthattheappropriateness ofa secondorderfactormodel may begauged bytheTarget(T)coefficient,whichmay be defined as the ratio of the chisquare values for the baseline model (Model 1) and second order factor model (Model 3). As noted by Marsh and Hocevar (1985), the secondorder model can never achieve better fit than the firstorder model upon which it is based. Therefore, one method of evaluating the efficacy of the secondorder model is to gauge it relativetothemeasurement modeluponwhichitisbased(MarshandHocevar,1985).The maximumvalueoftheTargetCoefficientisone,withvaluesclosertooneindicatingthatthe secondorder factor captures the variation/covariation of the firstorder factor model sufficiently (StewartandSegars,2002).TheTargetCoefficientassociatedwiththesecond orderfactormodelofrelationshipclosenessis0.88,whichsupportstheappropriatenessofthe secondorderfactorstructure.Throughcomparisonofalternatefactorstructures,itisevident thatthesecondorderfactormodelrepresentstheobservedcovariancematrixofthefirstorder factormodel(Model1)reasonablywellandalsooffersamoreparsimoniousrepresentation. Hence,itisreasonabletoconcludethatrelationshipclosenessiswellrepresentedbyasecond order factor model, which consists of four firstorder factors: information sharing, trust, solidarity,andsharedbenefit.

180

Figure5.13:Relationshipclosenesssecondorderfactormodel

d1 omc4.11 e1 e2 e3

Information Sharing
d2

omc4.21 omc4.31

bocwr1.1

e11 e12 e13

Trust

bocwr4.1 bocwr9.1

Relationship Closeness

d3 bfr3.1 e21 e22 e23

Solidarity
d4

bfr4.1 bfr5.1

bfr1.11

e31 e32

Shared Benefit

bfr1.21

181

Table5.32: Relationshipclosenesssecondorderfactor modelpathcoefficientsa

Regression Path Relationshipclosenessto Informationsharing Trust Solidarity SharedBenefit InformationSharingto omc4.11 omc4.21 omc4.31 Trustto bocwr1.1 bocwr4.1 bocwr9.1 Solidarityto bfr3.1 bfr4.1 bfr5.1 SharedBenefitto bfr1.11 bfr1.21
a b

Standardized Loading .392 .881 .762 .468 .907 .951 .918 .741 .848 .808 .625 .752 .668 .919 .929

tvalue

constrained 5.95b 5.86b 5.45b constrained 33.32b 30.59b constrained 15.84b 15.43b constrained 10.38b 9.78b constrained 13.90b

2 Modelfitstatistics:n=425,df=40, =87.05(p<.001), NFI=.969,CFI=.983,RMSEA=.053 p<.001

Table5.33:Measuresofmodelfit:alternatefactorstructures
MeasureofFit Model1: Model2: Model3: FourFirst OneFirst SecondOrder OrderFactors OrderFactor Factor 76.24(38) 2.00 .973 .986 .049 1425.50(44) 32.40 .497 .500 .272 87.05(40) 2.18 .969 .983 .053

2 (df)

/(df) NFI CFI RMSEA

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5.3.5 FirstOrderConstruct FollowingthegeneralapproachofZhangetal.(2003,p.185),thesecondorderrelationship closeness model was reassessed using aggregated measures of each firstorder factor as indicatorstorelationshipcloseness. Additionally,consistentwiththetheoreticaldevelopment in section 3.1.7, a single measure representing flexibility was included as an additional manifest variable. As such, relationship closeness was modeled as firstorder factor having fiveindicatorsrepresenting(1)informationsharing,(2)trust,(3)solidarity,(4)sharedbenefit and(5)flexibility.Adiagrammaticalrepresentationofrelationshipclosenessasafirstorder factor is provided in Figure 5.14. Table 5.34 defines each identifier in Figure 5.14, lists valuesforseveralmodelfitindices,andprovidesthestandardizedpathcoefficientsforeach indicator. As noted in Table 5.34, the model fit statistics indicate good model fit and the standardized path coefficients are consistent with those of the secondorder factor model. Table 5.35 reports a set of reliability statistics for the relationship closeness firstorder construct. The model fit indices, standardized factor loadings, and reliability statistics generally confirm earlier findings derived from the assessment of the secondorder factor model.

183

Figure5.14: Measurementmodelforrelationshipcloseness

m_infosh m_trust

e1 e2 e3 e4 e5

Relationship Closeness

m_solida m_shbene bcpp4.1

Table5.34: Standardizedloadingsforrelationshipclosenessb
Identifier m_infosh m_trust Item Meanofomc4.11,omc4.21,omc4.31 Meanofbocwr1.1,bocwr4.1,bocwr9.1 Standardized Loading .405 .768 .655 .475 .646 tvalue 7.35c 14.97c 12.57c 8.74c 12.38c

m_solida Meanofbfr3.1,bfr4.1,bfr5.1 m_shbene Meanofbfr1.11,bfr1.21 bcpp4.1 <<MFGR>>givesflexibilitytomeetcostobjectivesa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=393,df=5, =8.70(p=.122),NFI=.977,CFI=.990,RMSEA=.043 p<.001

184

Table5.35: Reliabilitystatisticsforrelationshipclosenessa
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .3452 .6025 .5046 .4063 .5436 .7195 .7143 .7237 .6201 .6565 .6966 .6358

m_infosh m_trust m_solida bcpp4.1

a

Meanofomc4.11,omc4.21,omc4.31 Meanofbocwr1.1,bocwr4.1,bocwr9.1 Meanofbfr3.1,bfr4.1,bfr5.1 <<MFGR>>givesflexibilitytomeetcost objectives

m_shbene Meanofbfr1.11,bfr1.21

EstimatedusingSPSSv11.5.0reliabilityanalysis

5.4

BuyerSupplierRelationshipGoodnessConstructValidity

Using the Garver and Mentzer (1999) approach, this section assesses the validity of the relationship goodness construct. In the subsections below, the unidimensionality (5.4.1), reliability (5.4.2), and convergent and divergent validity (5.4.3) for this construct is examined. 5.4.1 Unidimensionality Using the Garver and Mentzer (1999) approach, construct validity was assessed for the relationshipgoodnessconstruct.Adiagrammaticalrepresentationofrelationshipgoodnessis provided in Figure5.15.Table5.36defines each identifier in Figure5.15andprovidesthe standardized path coefficients for each indicator. As reported in Table 5.36, each factor loadingissignificant(p<.001),thesignofeachloadingisintheexpecteddirection,andtwo of the three path coefficients are greaterthan the recommended value of 0.7. Additionally, resultsfromPrincipalComponentsAnalysis(seeAppendixA,TableA.6)furthersuggestthe unidimensionalityofthisconstruct.

185

Figure5.15: Measurementmodelforrelationshipgoodness

bocwr12

e1 e2 e3

Relationship Goodness

bocwr13 bocwr5.1

Table5.36:Standardizedloadingsforrelationshipgoodnessd
Identifier bocwr13 Item Degreethat<<MFGR>>isapreferredcustomer a Standardize dLoading .702 .776 .597 tvalue 10.44e 11.31e 9.10e

bocwr12 Changeinoverallrelationshipwith<<MFGR>>b bocwr5.1 Extentofgoodoverallrelationshipwith<<MFGR>>c

a b

c d e

Scale: 1=wouldprefernotdoingbusinesswiththem,2=ambivalent,3=somewhatpreferred,4=verypreferred, 5=mostpreferred Scale: 1=muchdeteriorated,2=deteriorated,3=moderatelydeteriorated,4=stayedthesame,5=moderately improved,6=improved,7=muchimproved Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=269,df=0, =N/A,NFI= N/A,CFI= N/A,RMSEA= N/A p<.001

5.4.2 Reliability Table 5.37 reports reliability statistics for the relationship goodness construct Cronbachs coefficientalphaforrelationshipgoodnessis0.72,indicatingacceptableinternalconsistency of the scale. In aggregate, these findings support claims of convergent validity for the relationshipgoodnessconstruct.

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Table5.37: Reliabilitystatisticsforrelationshipgoodnessa
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .5741 .6024 .5036 .5995 .7238 .7314 .5777 .7004

bocwr13 Degreethat<<MFGR>>isapreferred customer bocwr12 Changeinoverallrelationshipwith <<MFGR>> bocwr5.1 Extentofgoodoverallrelationshipwith <<MFGR>>

a

EstimatedusingSPSSv11.5.0reliabilityanalysis

5.4.3 ConvergentandDiscriminantValidity This research posits that buyersupplier relationship closeness is positively related to the buyersupplier relationship goodness. Following the recommendations of Garver and Mentzer (1999), the relationship closeness and relationship goodness constructs were subjected to pairwise confirmatory factor analysis. Figure 5.16 presents a diagrammatical representationofthepairwisemeasurementmodel. AsreportedinTable5.38(footnote1), model fit indices suggest acceptable model fit (NFI=.914, CFI=.943, and RMSEA=.082). Consistent with initial unidimensionality analyses, pairwise confirmatory factor analyses yield factor loadings that (1) have the anticipated sign, (2) are significant at the 0.001 level,and(3)areofsimilarmagnitudesasthosepresentedinTable5.36. Assuch,claimsof convergentvalidityaresupported. Itemlevel discriminant validity was assessed using pairwise confirmatory factor analysis. Table 5.38 presents the modification indices for the corresponding pairwise measurementmodel.AssuggestedbyGarverandMentzer(1999), the tablewasinspectedfor modification indicesthat indicateasubstantivecrossloading betweena latentconstructand anunintendedmeasurementitem.Areviewofthepairwisemodificationindicessuggeststhe

187

presence of no significant crossloadings all modification indices associated with potential crossloadingsarelessthanthe7.88cutoffrecommendedbyGarverandMentzer(1999). To evaluate constructlevel discriminant validity, the interfactor correlation was constrained to one and the chisquare statistic associated with the constrained model was comparedtothechisquarestatisticofunconstrainedmodel. Table5.40reports thechisquare value for the constrained model, the corresponding chisquare difference value, and the p value associated with the chisquare difference test. As shown in this table, the chisquare difference value is significant this result suggests thatrelationship goodness of relationship closeness, which are conceptually highly related, are indeed distinct constructs (Cook and Campbell,1979).

Figure5.16:Measurementmodelforrelationshipclosenessandrelationshipgoodness

m_infosh m_trust

e1 e2 e3 e4 e5

Relationship Closeness

m_solida m_shbene bcpp4.1

bocwr12

e11 e12 e13

Relationship Goodness

bocwr13 bocwr5.1

188

Table5.38:Modificationindicesforrelationshipclosenessandrelationshipgoodness
Items m_infosh m_infosh m_trust m_trust m_solida m_solida m_shbene m_shbene bcpp4.1 bcpp4.1 bocwr13 bocwr13 bocwr12 bocwr12 bocwr5.1 bocwr5.1
a

Factors RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness RelationshipCloseness RelationshipGoodness
2

Modification Indices .000 .024 .000 .050 .000 .055 .000 .157 .000 .038 .133 .000 .026 .000 .154 .000

Modelfitstatistics:n=251,df=19, =50.83(p<.001), NFI=.914,CFI=.943,RMSEA=.082

Table5.39:Correlation statisticsforrelationshipclosenessandrelationshipgoodness
RelationshipGoodness Relationship Closeness .93 pvalue <.001

189

Table5.40: Discriminantvalidityanalysisforrelationshipclosenessandrelationship goodnessa

ConstrainedPath RelationshipClosenessto RelationshipGoodness
a

2 (df=20)

2 (df=1)

pvalue p<.05

55.78

4.95

Correlationoftheconstrainedpathissetto1.

5.5

AntecedentstoRelationshipClosenessConstructValidity

Thecausalmodelofbuyersupplierrelationshipclosenesspositsthatrelationshipclosenessis negatively associated with distributive supply management activities, but positively associated with integrative supply management activities. Whereas integrative supply

management practices are operationalized as direct involvement activities, distributive activities are measured as the extent to which the automotive components manufacturer leveragescompetitivepressure. Thissectionseekstoestablishthevalidityoftheintegrative and distributive supply management constructs. Using the Garver and Mentzer (1999) approach (as discussed in 5.3), construct validity is assessed by evaluating the unidimensionality(5.5.1),reliability(5.5.2),andconvergentanddivergentvalidity(5.5.3) fortheintegrativeanddistributivesupplymanagementconstructs. 5.5.1 Unidimensionality Initially, the unidimensionality of integrative and distributive supply management activities wasassessedbyindependentlytestingeach latent construct with its intended indicators. As before (see 5.3.1), unidimensionality is initially evidenced if (1) each factor loading maintainstheanticipatedsign,(2)themagnitudeofeachstandardizedfactorloadingisgreater thanorequalto0.7(0.7),(3)theloadingofeachfactorloadingissignificant(at0.05),

190

and(4)themeasurementmodelmaintainsacceptablefit(GarverandMentzer,1999). Figures 5.17 and 5.18 depict the diagrammatical representations of each firstorder factor and its intended measures Tables 5.41 and 5.42 present standardized factor loadings and model fit statistics. A review of the standardized path coefficients for integrative and distributive supply management activities shows that all loadings are in the expected direction, all loadings are significant at the 0.001 level, and model fit for both models is considered acceptable. Additionally, all path coefficients, with the exception of the path coefficient of bqcc2.21(seeTable5.41),areaboveormarginallybelowthe0.7recommendedcutoffvalue. Despite the low standardized loading associated with bqcc2.21 ( = 0.387), this measure is retained as it is deemed essential to the operationalization of the distributive activity construct. Overall,thisevidenceprovidesinitialsupportforunidimensionality. Additionally, results from Principal Components Analysis (see Appendix A, Tables A.7 through A.9) furthersuggesttheunidimensionalityofeachconstruct. The initial assessment of the integrative activity measure model warrants additional discussion. Asrepresentedwith Figure5.18,thereare foursignificantcorrelationsamongst the indicatorserrorterms.Using modification indicesasaguide(Byrne,2001),individual errorcovariancesweresequentiallyunconstrainedinordertoimprovemodelfit.Areviewof the wording of questions bqcc3.11, bqcc3.21, and bqcc3.31 suggests that the significant correlationsamongsttheseobservable variables errorterms may beattributabletocommon method bias, as each item employs the keyword helps. A fourth significant correlation, between bqcc3.21 and bcpp15.1, may be attributable to the logical association between eliminatewaste(bqcc3.21)andleanmanufacturing(bcpp15.1).Assuch,theadditionof fourunconstrainedcovariancepathswithintheintegrativemeasurementisdeemedjustifiable.

191

Figure5.17: Measurementmodel fordistributiveactivity

bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51

e1 e2 e3 e4

Distributive Activity

Table5.41:Standardizedloadingsfordistributiveactivityb
Identifier Item Standardized Loading .387 .661 .844 .602 tvalue 6.93c 12.29c 15.54c 11.18c

bqcc2.21 Yourfirmfeelspressuretoreducetotalcosta bqcc2.31 Yourfirmfeelspressuretoimprovequalitya bqcc2.41 Yourfirmfeelspressuretoimprovedeliverya bqcc2.51 Yourfirmfeelspressuretoupgradetechnologya

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent 2 Modelfitstatistics:n=375,df=2, =5.99 (p=.050),NFI=.981,CFI=.987,RMSEA=.073 p<.001

Figure5.18: Measurementmodel forintegrativeactivity

bqcc3.11 bqcc3.21 bqcc3.31

e1 e2 e3 e4 e5 e6 e8

Integrative Activity

bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1

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Table5.42:Standardizedloadingsforintegrativeactivityd
Identifier Item Standardized Loading .689 .705 .635 .864 .759 .715 .675 tvalue 14.12e 14.50e 12.70e 19.51e 16.19e 14.92e 13.80e

bqcc3.11 <<MFGR>>helpsreducecostsa,b bqcc3.21 <<MFGR>>helpseliminatewastea,b,c bqcc3.31 <<MFGR>>helpsimprovequalitya,b bcpp15.1 <<MFGR>>workswithyourfirmonsupplychain designimprovement a bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturinga,c bcpp15.3 <<MFGR>>workswithyourfirmonpartsscheduling improvements a bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychaina
a b

d e

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent Measurementmodelincludescorrelatederrorsbetweenbqcc3.11,bqcc3.21,andbqcc3.31duetocovariation attributableto thecommonwordingofeachitem Measurementmodelincludescorrelatederrorsbetweenbqcc3.21andbcpp15.2duetocovariationattributable tothe associationbetweeneliminatewasteandleanmanufacturing 2 Modelfitstatistics:n=362,df=10, =18.79(p=.043),NFI=.987,CFI=.994,RMSEA=.049 p<.001

5.5.1 Reliability Tables 5.43 and 5.44 present reliability statistics for distributive and integrative supply managementactivities.Asnotedwithinthesetables,Cronbachscoefficientalphavaluesfor distributive and integrative activities are 0.71 and 0.89, respectively. These values suggest acceptablescalereliabilityforeachfirstorderfactor.

193

Table5.43:Reliabilitystatisticsfordistributiveactivitya
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .3513 .5559 .6214 .4851 .7377 .7133 .7131 .6183 .5685 .6597

bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51

a

Yourfirmfeelspressuretoreducetotalcost Yourfirmfeelspressuretoimprovequality Yourfirmfeelspressuretoimprovedelivery Yourfirmfeelspressuretoupgradetechnology

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.44: Reliabilitystatisticsforintegrativeactivitya
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .7100 .7797 .6393 .7544 .7068 .6492 .6021 .8747 .8927 .8931 .8663 .8833 .8694 .8754 .8818 .8871

bqcc3.11 bqcc3.21 bqcc3.31

<<MFGR>>helpsreducecosts <<MFGR>>helpseliminatewaste <<MFGR>>helpsimprovequality

bcpp15.1 <<MFGR>>workswithyourfirmonsupply chaindesignimprovement bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturing bcpp15.3 <<MFGR>>workswith yourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain
a

EstimatedusingSPSSv11.5.0reliabilityanalysis

5.5.3 ConvergentandDiscriminantValidity This research posits that buyersupplier relationship closeness is negatively related to the buying firms use of distributive supply management activities and positively related tothe buyingfirmsuseofintegrativesupplymanagementactivities(seeFigure3.2). Followingthe recommendations of Garver and Mentzer (1999), the relationship closeness, distributive

194

supply management, and integrative supply management constructs were subjected to pair wise and fullmodel confirmatory factor analyses. Figures 5.19, 5.20, and 5.21 present diagrammatical representations for each pairwise measurement model. Consistent with initial unidimensionality analyses, pairwise confirmatory factor analyses yielded factor loadingsthat(1)havetheanticipatedsign,(2)aresignificant atthe0.001level,and(3) are of similar magnitudes as those presented in Tables 5.41 and 5.42. As such, claims of convergentvalidityaresupported. Initially, itemlevel discriminant validity was assessed using pairwise confirmatory factor analysis. Tables 5.45, 5.46, and 5.47 present the modification indices for each correspondingpairwise measurement model.AssuggestedbyGarverand Mentzer(1999), each table was inspected for modification indices that indicate a substantive crossloading betweena latentconstructandanunintended measurementitem. Areviewofthepairwise modification indices suggests the presence of a two significant crossloadings these cross loadingsoccurbetween(1)bqcc2.51andintegrativeactivity(M.I.=17.65),(2)bqcc2.51and relationshipcloseness(M.I.=16.92). Allothermodificationindicesassociatedwithpotential crossloadingsarelessthanthe7.88cutoffrecommendedbyGarverandMentzer(1999). In total, 30 out of 32 (94%) potential crossloadings do not substantively affect model fit as such,initialevidenceofitemleveldiscriminantvalidityisprovided.

195

Figure5.19: Measurementmodelfordistributiveandintegrativeactivities

bqcc2.21

e2 e3 e4 e5

Distributive Activity

bqcc2.31 bqcc2.41 bqcc2.51

bqcc3.11 bqcc3.11 bqcc3.21

e11 e12 e13 e14 e15 e16 e17

Integrative Activity

bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1

196

Table5.45:Modificationindicesfordistributiveandintegrativeactivitiesa,b
Items bqcc2.51 bqcc2.51 bqcc2.41 bqcc2.41 bqcc2.31 bqcc2.31 bqcc2.21 bqcc2.21 bqcc6.1 bqcc6.1 bqcc15.3 bqcc15.3 bqcc15.2 bqcc15.2 bqcc15.1 bqcc15.1 bqcc3.31 bqcc3.31 bqcc3.21 bqcc3.21 bqcc3.11 bqcc3.11
a b

Factors DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity DistributiveActivity IntegrativeActivity

Modification Indices .000 17.649 .000 4.474 .000 2.368 .000 1.239 1.514 .000 .080 .000 1.755 .000 .000 .000 7.304 .000 .556 .000 .289 .000

2 Modelfitstatistics:n=315,df=39, =128.23 (p<.001), NFI=.923,CFI=.945,RMSEA=.085 Interfactorcorrelation=.482 (p<.001)

197

Figure5.20: Measurementmodelfordistributiveactivity andrelationshipcloseness

bqcc2.21

e2 e3 e4 e5

Distributive Activity

bqcc2.31 bqcc2.41 bqcc2.51

m_infosh m_trust

e11 e12 e13 e14 e15

Relationship Closeness

m_solida m_shbene bcpp4.1

198

Table5.46: Modificationindicesfordistributiveactivity andrelationshipclosenessa,b

Items bqcc2.51 bqcc2.51 bqcc2.41 bqcc2.41 bqcc2.31 bqcc2.31 bqcc2.21 bqcc2.21 bcpp4.1 bcpp4.1 m_shbene m_shbene m_solida m_solida m_trust m_trust m_infosh m_infosh
a b

Factors DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness DistributiveActivity RelationshipCloseness
2

Modification Indices .000 16.923 .000 1.379 .000 3.552 .000 2.688 .042 .000 .025 .000 .000 .000 .122 .000 .117 .000

Modelfitstatistics:n=315,df=26, =66.93(p<.001), NFI= .895,CFI= .932,RMSEA=0.071 Interfactorcorrelation=.406(p<.001)

199

Figure5.21: Measurementmodelforrelationshipclosenessandintegrativeactivity

m_infosh m_trust

e1 e2 e3 e4 e5

Relationship Closeness

m_solida m_shbene bcpp4.1

bqcc3.11 bqcc3.11 bqcc3.21

e11 e12 e13 e14 e15 e16 e17

Integrative Activity

bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1

200

Table5.47:Modificationindicesforrelationshipclosenessandintegrativeactivitya,b
Items bcpp4.1 bcpp4.1 m_shbene m_shbene m_solida m_solida m_trust m_trust m_infosh m_infosh bcpp6.1 bcpp6.1 bqcc15.3 bqcc15.3 bqcc15.2 bqcc15.2 bqcc15.1 bqcc15.1 bqcc3.31 bqcc3.31 bqcc3.21 bqcc3.21 bqcc3.11 bqcc3.11
a b

Factors RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity RelationshipCloseness IntegrativeActivity

Modification Indices .000 .008 .000 .615 .000 .034 .000 .106 .000 .127 2.383 .000 .064 .000 1.550 .000 .651 .000 .004 .000 .016 .000 .096 .000

2 Modelfitstatistics:n=315,df=49, =105.15(p<.001),NFI= .943, CFI=.968,RMSEA= 0.060 Interfactorcorrelation=.852(p<.001)

201

Figure5.22providesadiagrammaticalrepresentationofthe fullmeasurement model thatincludesrelationshipcloseness. Thefullmeasurementmodelconsistsof threefirstorder factors (distributive activity, relationship closeness, and integrative activity) and their corresponding16measurementitems.Table5.51providesthemean,standarddeviation,and correlation for each item included in the full measurement model. Acceptable model fit is indicated by several goodness of fit measures as reported in Table 5.49, footnote b, NFI =
2 0.889,CFI=0.928, RMSEA =0.072,andX /(df)=2.61(Zhangetal.,2003).Additionally,all

interfactorcovariances(seeTable5.49)and factorloadingsaresignificantatthe0.001 level.Table5.48providesareviewofthemodificationindicesassociatedwitheachpotential crossloading. As evidenced within this table, the modification indices suggest two substantivecrossloadings,whichconfirmtheresultsobtainedthroughpairwisediscriminant analysisassessment. Constructleveldiscriminantvaliditywasassessedusingthe full factormodelshown inFigure5.22.Usinganiterativeprocess,discriminantvaliditywasevaluatedforeachpair offactors(AndersonandGerbing,1988).Foreachpairoffactors,theassociatedcovariance wasconstrainedtooneandthechisquarestatisticassociatedwiththeconstrainedmodelwas comparedtothechisquarestatisticofunconstrainedmodel. Table5.50reportsthechisquare value for each constrained model, the corresponding chisquare difference value, and the p valueassociatedwiththechisquaredifferencetest.Asshowninthistable,eachchisquare difference value is significant this result supports claims of discriminant validity for the relationship closeness, distributive supply management activity, and integrative supply managementactivityconstructs.

202

Figure5.22: Fullmeasurementmodelforalllatentconstructs

bqcc2.21 Distributive Activity bqcc2.31 bqcc2.41 bqcc2.51

e12 e13 e14 e15

m_infosh m_trust

e21 e22 e23 e24 e25

Relationship Closeness

m_solida m_shbene bcpp4.1

bqcc3.11 bqcc3.11 bqcc3.21 Integrative Activity bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1

e1 e2 e3 e4 e5 e6 e7

203

Table5.48:Modificationindicesforfullmeasurementmodel
Items Distributive Activity Distributive Activity bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51 Relationship Closeness m_infosh m_trust m_solida m_shbene bcpp4.1 Integrative Activity bqcc3.11 bqcc3.21 bqcc3.31 bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1 .036 .029 .008 .004 .025 .000 .000 .000 .000 .000 .129 .108 .032 .612 .008 Factors Relationship Closeness Integrative Activity

.000 .000 .000 .000

3.474 4.724 2.759 19.540

1.952 3.155 4.530 19.604

.326 .543 7.221 .061 1.106 .144 2.670

.106 .011 .017 .655 1.491 .075 2.540

.000 .000 .000 .000 .000 .000 .000

204

Table5.49: Firstorderfactorcorrelationsforfullmeasurementmodela,b
Distributive Activity Distributive Activity Relationship Closeness Integrative Activity
a b

Relationship Closeness

Integrative Activity

1 .430 .487 1 .851 1

Allcorrelationssignificantatp<.001 2 Modelfitstatistics:n=315,df=97, =253.18(p<.001), NFI=.889,CFI=.928,RMSEA=.072

Table5.50: Firstorderfactordiscriminantvalidity analysisa

ConstrainedPath Integrativeactivity to relationshipcloseness Integrativeactivity to distributiveactivity Relationshipclosenessto distributiveactivity
a

2 (df=98)

2 (df=1)

pvalue p<.001 p<.001 p<.001

284.55 409.44 409.95

31.37 156.26 156.77

Correlationoftheconstrainedpathissetto1.

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Table5.51: Descriptivestatisticsforitemswithinthefullmeasurementmodel
RowType Item bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51 bqcc3.11 bqcc3.21 1 0.29874 0.24798 0.22971 0.02149 0.01842 0.12644 0.12918 0.0643 0.03472 0.06254 0.05442 0.05555 0.00689 0.00377 0.03906 0.09906 0.02797 315 1.15034 3.68889 1 0.5446 0.38516 0.18618 0.1963 0.33624 0.20107 0.16362 0.15731 0.09369 0.07217 0.12623 0.14486 0.03248 0.09683 0.01882 0.14726 315 1.08426 3.57143 1 0.54255 0.2124 0.23685 0.32305 0.27489 0.19698 0.22081 0.13619 0.13721 0.12953 0.22513 0.21811 0.13118 0.09386 0.17595 315 1.18885 3.0254 1 0.45262 0.45915 0.38922 0.4023 0.28962 0.38198 0.23981 0.38081 0.15334 0.3314 0.30474 0.31084 0.27304 0.32218 315 1.09379 2.55873 1 0.79283 0.61498 0.555 0.51971 0.48921 0.29303 0.51054 0.27007 0.48568 0.37031 0.44455 0.38608 0.36657 315 1.07053 2.13968 1 0.6689 0.54135 0.63376 0.5007 0.3416 0.46403 0.24749 0.41419 0.37104 0.37616 0.32556 0.36631 315 1.06239 2.13333

Correlation bqcc2.21 Correlation bqcc2.31 Correlation bqcc2.41 Correlation bqcc2.51 Correlation bqcc3.11 Correlation bqcc3.21 Correlation bqcc3.31 Correlation bcpp15.1 Correlation bcpp15.2 Correlation bcpp15.3 Correlation omr1.11 Correlation bcpp6.1 Correlation m_infosh Correlation m_trust Correlation m_solida Correlation m_commit Correlation m_shbene Correlation bcpp4.1 N Std.Dev. Mean

206

Table5.51continued:
RowType Item bqcc3.31 bcpp15.1 bcpp15.2 bcpp15.3 omr1.11 bcpp6.1 1 0.53561 0.50429 0.47099 0.30786 0.38609 0.22386 0.39776 0.39078 0.33227 0.2774 0.33943 315 1.10067 2.53333 1 0.62439 0.63847 0.24672 0.59937 0.32053 0.47588 0.42342 0.40356 0.34113 0.43951 315 1.01632 2.46349 1 0.53042 0.36973 0.45871 0.29219 0.36281 0.31386 0.27891 0.33931 0.25976 315 1.17967 2.65714 1 0.2862 1 1

Correlation bqcc3.31 Correlation bcpp15.1 Correlation bcpp15.2 Correlation bcpp15.3 Correlation omr1.11 Correlation bcpp6.1 Correlation m_infosh Correlation m_trust Correlation m_solida Correlation m_commit Correlation m_shbene Correlation bcpp4.1 N Std.Dev. Mean

0.52751 0.32726

0.29283 0.08948 0.24741 0.48902 0.21323 0.57309 0.40147 0.26288 0.44162 0.38504 0.15133 0.53202 0.32418 0.23141 315 315 0.2836 315 2.6 0.43776 0.16151 0.50899 1.03495 1.48247 1.05818 2.33651 2.45397

Table5.51continued:
RowType Item m_infosh m_trust m_solida m_commit m_shbene bcpp4.1 1 0.33897 1 0.19067 0.52441 0.28307 0.78628 0.16311 0.29252 0.27491 0.49832 315 315 0.96952 0.85741 3.68148 3.07619 1 0.45742 0.27739 0.407 315 0.83324 2.29048 1 0.30685 0.46097 315 0.8327 3.02804 1 0.29363 315 1 315

Correlation m_infosh Correlation m_trust Correlation m_solida Correlation m_commit Correlation m_shbene Correlation bcpp4.1 N Std.Dev. Mean

1.03681 1.02294 2.27143 2.47619

207

5.6

SupplyManagementPracticesConstructValidity

This research posits that the intensity ofseveralsupply management practices varies across clustersofsupplierrelationshipsthatcomposeabuyingfirmssupplierrelationshipportfolio. In particular, 3.4.1 asserts that the relative importance of supplier selection criteria, the comprehensivenessofabuyingfirmssupplierevaluationsystem,andabuyingfirmsuseof competitivepressureanddirectinvolvementtacticsvaryacrosssetsofsupplierrelationships. Withtheexceptionoftherelativeimportanceofsupplierselectioncriteria(whichismeasured using an index), this section seeks to establish the validity of each supply management practice considered herein. In the following subsections, unidimensionality (5.6.1), reliability (5.6.2), and convergent and discriminant validity (5.6.3) is assessed for the supplier evaluation comprehensiveness, competitive pressure, and direct involvement constructs. 5.6.1 Unidimensionality In their review of operations research methodology, OLearyKelly and Vokurka (1998, p. 392)citethatexploratoryfactoranalysismaybeusedtoestablishthatagroupofempirical indicators are unidimensional with regard to a predefined latent construct. As such, the unidimensionality of each factor was initially assessed by applying principal components analysistoindividualfactors.Tables5.52,5.53,and5.54reportfactorloadingsforsupplier evaluation comprehensiveness, competitive pressure, and direct involvement constructs, respectively. Asindicatedinthetables, theKaiserMeyerOlkinmeasureandBartlettstestof sphericity indicate the acceptability of the factor analyses, all factor loadings maintain the anticipated sign, and all factor loadings exceed 0.5, which represents anaccepted minimum

208

valueforasubstantiveloadingforexploratoryfactoranalysis(seeZhangetal.,2003,p.181). Theseresultsprovideinitialevidenceofconstructunidimensionality.

Table5.52: Factorloadingsforcomprehensivenessofsupplierevaluationb,c
Identifier oms2.11 oms2.21 oms2.31 oms4.1
a b c

Item <<MFGR>>metricsaccuratelyreflectperformanceofsupplied goods a <<MFGR>>providestimelyperformancefeedback a <<MFGR>>providesadequateperformancefeedback <<MFGR>>adequatelymeasuresyourfirmsoverallperformancea

a

Factor Loading 0.8540 0.8946 0.9137 0.8181

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=364 KaiserMeyerOlkinmeasure=.831Bartlettstestofsphericity=876.05 (p<.001)

Table5.53:Factor loadingsforcompetitivepressureb,c
Identifier Item Factor Loading 0.5721 0.7830 0.8401 0.7280

bqcc2.21 Yourfirmfeelspressuretoreducetotalcosta bqcc2.31 Yourfirmfeelspressuretoimprovequalitya bqcc2.41 Yourfirmfeelspressuretoimprovedeliverya bqcc2.51 Yourfirmfeelspressuretoupgradetechnologya

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=375 KaiserMeyerOlkinmeasure=.705Bartlettstestofsphericity=312.37(p<.001)

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Table5.54:Factor loadingsfordirectinvolvement b,c

Identifier bqcc3.11 bqcc3.21 bqcc3.31 bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1
a b c

Item <<MFGR>>helpsreducecostsa <<MFGR>>helpseliminatewaste

a a

Factor Loading 0.7991 0.8518 0.7385 0.8296 0.7960 0.7433 0.7041

<<MFGR>>helpsimprovequality

<<MFGR>>workswithyourfirmonsupplychaindesign improvement a <<MFGR>>workswithyourfirmonleanmanufacturinga <<MFGR>>workswithyourfirmonpartsschedulingimprovements

a

<<MFGR>>workswithyourfirmtoestablishcompetitivesupply chaina

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=368 KaiserMeyerOlkinmeasure=.876Bartlettstestofsphericity=1392.62(p<.001)

5.6.2 Reliability Tables5.55,5.56,and5.57reportacomprehensivesetofreliabilitystatisticsforthesupplier evaluation comprehensiveness, competitive pressure, and direct involvement constructs, respectively.Asnotedinthesetables,coefficientalphavaluesrangefrom0.71to0.89these results suggest that the scales for supplier evaluation comprehensiveness, competitive pressure,anddirectinvolvementexhibitacceptablelevelsofreliability.

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Table5.55:Reliabilitystatisticsforcomprehensivenessofsupplierevaluationa
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .7378 .8000 .8313 .6900 .8719 .8931 .8931 .8486 .8364 .8898

oms2.11 <<MFGR>>metricsaccuratelyreflect performanceofsuppliedgoods oms2.21 <<MFGR>>providestimelyperformance feedback oms2.31 <<MFGR>>providesadequateperformance feedback oms4.1
a

<<MFGR>>adequatelymeasuresyourfirms overallperformance

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.56:Reliabilitystatisticsforcompetitivepressurea
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .3513 .5559 .6214 .4851 .7377 .7133 .7131 .6183 .5685 .6597

bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51

a

Yourfirmfeelspressuretoreducetotalcost Yourfirmfeelspressuretoimprovequality Yourfirmfeelspressuretoimprovedelivery Yourfirmfeelspressuretoupgradetechnology

EstimatedusingSPSSv11.5.0reliabilityanalysis

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Table5.57: Reliabilitystatisticsfordirectinvolvement a
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .7100 .7797 .6393 .7544 .7068 .6492 .6021 .8747 .8927 .8931 .8663 .8833 .8694 .8754 .8818 .8871

bqcc3.11 bqcc3.21 bqcc3.31

<<MFGR>>helpsreducecosts <<MFGR>>helpseliminatewaste <<MFGR>>helpsimprovequality

bcpp15.1 <<MFGR>>workswithyourfirmonsupply chaindesignimprovement bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturing bcpp15.3 <<MFGR>>workswithyourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain
a

EstimatedusingSPSSv11.5.0reliabilityanalysis

5.6.3 ConvergentandDiscriminantValidity Convergentanddiscriminantvaliditywasassessedbyapplyingprincipalcomponentsanalysis to the entire set of measures that compose the supplier evaluation comprehensiveness, competitive pressure, and direct involvement constructs. Convergent validity is suggested whenmeasuresloadhighlyontotheirintendedconstructs. Zhangetal.(2003),citingHairet al. (1995), suggestthat factortointended item loadings greaterthan 0.5 may be considered substantive and that crossloadings greater than or equal to 0.4 may be problematic. As reported in Table 5.58, the KaiserMeyerOlkin measure and Bartletts test of sphericity indicatetheacceptabilityofthe factoranalyses. All measures have substantive loadingson their intended constructs all factortointended item loadings are greater than 0.5. Additionally, the magnitude of itemtointended factor loadings for all but two measures (bqcc2.21andbqcc2.51)isgreaterthan0.7.

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Itemleveldiscriminantvalidityisevidencedwhenmeasuresdonotsubstantivelyload onto unintended constructs. Table 5.58 reports one substantive crossloading (greater than 0.4) between bqcc2.51 and the direct involvement construct (underlined) all other potential crossloadings (29/30 or 97%) appear inconsequential. Further evidence of discriminant validity is provided by noting that the lowest factortoitem loading for each construct is higherthanallothercrossloadings(Chin,1998a). FollowingtheapproachofPrahinskiandBenton(2004),constructleveldiscriminant validity was assessed by evaluating the correlations between each latent factor. Construct leveldiscriminantvalidityisevidencediftheconfidenceintervalofaninterfactorcorrelation does not include one (Anderson and Gerbing, 1988). Table 5.59 presents the interfactor correlations for the supplier evaluation comprehensiveness, competitive pressure, and direct involvementconstructs.Asnotedinthetable,allcorrelationsaresignificant(p<.001)and less than 0.5. Accordingly, discriminant validity is evidenced as each of the interfactor correlationsissignificantlydifferentthanone.

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Table5.58:

Supplymanagementpracticesrotatedcomponentmatrixa,b
Construct Construct Item Identifier Direct Evaluation Competitive Involvement Compreh. Pressure .805 .836 .704 .805 .771 .752 .706 .070 .190 .151 .118 .085 .125 .185 .458 .017 .051 .136 .261 .109 .141 .087 .856 .875 .899 .793 .134 .025 .086 .059 .100 .132 .275 .118 .032 .034 .023 .069 .055 .053 .172 .610 .789 .809 .620

DirectInvolvement bqcc3.11 bqcc3.21 bqcc3.31 bcpp15.1 bcpp15.2 bcpp15.3 bcpp6.1 Evaluation oms2.11 Comprehensiveness oms2.21 oms2.31 oms4.1 Competitive Pressure bqcc2.21 bqcc2.31 bqcc2.41 bqcc2.51
a b

LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysiswith Varimaxrotation,n=291 KaiserMeyerOlkinmeasure=.855Bartlettstestofsphericity=2347.03 (p<.001)

Table5.59:Supplymanagementpracticesinterfactorcorrelationsa,b
Construct Construct DirectInvolvement Correlation N Evaluation Correlation Comprehensiveness N Competitive Pressure
a

Direct Evaluation Competitive Involvement Comprehen. Pressure 1 0.351 410 0.370 369 1 0.218 377 1

Correlation N

LoadingsestimatedusingSPSSv11.5.0Pearsonbivariatecorrelationwithpairwise deletion Allcorrelationsaresignificantatp<.001

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5.7

OperationalBenefitsConstructValidity

Thisresearchpositsthatthemagnitudeofseveraloperationalbenefitsvariesacrossclustersof supplier relationships that compose a buying firms supplier relationship portfolio. In particular,3.4.2assertsthatbarrierstotechnologysharing,earlysupplierinvolvement,cost improvement opportunities, effectiveness of interfirm quality management, and secondtier supply management vary across sets of supplier relationships. With the exception of early supplierinvolvementandsecondtiersupplymanagement(whicharemeasuredusingasingle item),thissectionseekstoestablishthevalidityofeach operationalbenefitconsideredherein. Inthefollowingsubsections,unidimensionality(5.7.1),reliability(5.7.2),andconvergent and discriminant validity (5.7.3) is assessed for the barriers to technology sharinglack of interest, barriers to technology sharingfear of information misappropriation, cost improvementopportunities,andeffectivenessof interfirmqualitymanagementconstructs. 5.7.1 Unidimensionality Theunidimensionalityofeachfactorwasinitiallyassessedbyapplyingprincipalcomponents analysistoindividualfactors.Tables5.60,5.61,5.62and5.63reportfactorloadingsforthe barriers to technology sharinglack of interest, barriers to technology sharingfear of informationmisappropriation,costimprovementopportunities,andeffectivenessofinterfirm qualitymanagementconstructs.Asindicatedinthetables,theKaiserMeyerOlkinmeasure and Bartletts test of sphericity indicate the acceptability of the factor analyses, all factor loadings maintain the anticipated sign, and all factor loadings exceed the recommended minimum factor loading of 0.5 for exploratory factor analysis (Zhang et al., 2003). These resultsprovideinitialevidenceofconstructunidimensionality.

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Table5.60:Factorloadingsforbarrierstotechnology sharinglackofinterest b,c

Identifier Item Factor Loading 0.7537 0.7788
a a a

omts2.21 Lackof<<MFGR>>Purchasinginteresta omts2.31 Lackof<<MFGR>>Engineeringinterest omts2.61 Futuretechnologydirectionnotclearlycommunicated

a b c

0.7676 0.7380

omts2.13 <<MFGR>>designstheproductbeforeinvolvingmyfirm

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=358 KaiserMeyerOlkinmeasure=.743Bartlettstestofsphericity=341.75 (p<.001)

Table5.61: Factorloadingsforbarrierstotechnologysharingfearof information misappropriationb,c

Identifier Item Factor Loading 0.8349 0.9216 0.8850

omts2.81 Possibilityofnotbeingawarded productionbusinessa omts2.91 Concernideawillbeusedwithoutpermissiona omts2.10 Concerncompetitorswilllearnaboutidea a

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=394 KaiserMeyerOlkinmeasure=.693Bartlettstestofsphericity=571.14(p<.001)

Table5.62: Factorloadingsforcostimprovementopportunitiesb,c
Identifier Item Factor Loading 0.6290
a

omcm1.11 Reducingoverengineeredspecificationa omcm1.31 Reducingcomplex/bureaucraticprocessesandpaperwork omcm1.41 Makingspecificationsconsistentwithindustrystandards omcm1.51 Usingmoresimplifieddesigns

a a a

0.6328 0.7595 0.7272 0.8214 0.7950 0.7227

omcm1.61 Commonizingmaterialspecificationsacross<<MFGR>>divisions omcm1.71 Standardizingpartsacross<<MFGR>>divisionsa omcm1.81 Commonizingvalidationprocessacrossgoodsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=365 KaiserMeyerOlkinmeasure=.837Bartlettstestofsphericity=1044.51(p<.001)

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Table5.63: Factorloadingsforinterfirmqualitymanagement b,c

Identifier Item Factor Loading 0.8255 0.8718 0.5826

omqi4.10 Qualityofgoodsishurtbynotreceivingtimelyqualityrelated feedbacka omqi4.91 Qualityofgoodsishurtbylackofspecificqualityrequirementsa omqi4.21 Qualityofgoodsishurtbyhavingcostpressuresoverridequality concernsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=411 KaiserMeyerOlkinmeasure=.564Bartlettstestofsphericity=225.31(p<.001)

5.7.2 Reliability Tables5.64,5.65,5.66,and5.67reportacomprehensivesetofreliabilitystatisticsforbarriers to technology sharinglack of interest, barriers to technology sharingfear of information misappropriation, cost improvement opportunities, and effectiveness of interfirm quality management, respectively. As noted in these tables, coefficient alpha values initiallyrange from 0.65 to 0.86. Inspection of the alphaifitemdeleted values for the cost improvement measures suggests that the reliability of this scale, which is 0.65, may be significantly improvedbyeliminatingitemomqi.4.21. Assuch,thisitemmeasurewasremovedfromthe interfirm quality management construct consequently, the recomputed coefficient alpha valueforthisconstructis0.75. Insum,Tables5.64,5.65,5.66,and5.67suggestthatscales foreachconstructdemonstrateacceptablereliability.

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Table5.64:Reliabilitystatisticsforbarrierstotechnologysharinglackofinterest a
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .5420 .5758 .5633 .5251 .7033 .7550 .7554 .6848 .6914 .7123

omts2.21 Lackof<<MFGR>>Purchasinginterest omts2.31 Lackof<<MFGR>>Engineeringinterest omts2.61 Futuretechnologydirectionnotclearly communicated omts2.13 <<MFGR>>designstheproductbefore involvingmyfirm
a

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.65: Reliabilitystatisticsforbarrierstotechnologysharingfearof information misappropriationa

Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .6553 .8042 .7358 .8640 .8561 .8553 .7240 .7920

omts2.81 Possibilityofnotbeingawardedproduction business omts2.91 Concernideawillbeusedwithoutpermission omts2.10 Concerncompetitorswilllearnaboutidea

a

EstimatedusingSPSSv11.5.0reliabilityanalysis

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Table5.66:Reliabilitystatisticsforcostimprovementopportunitiesa
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .5106 .5150 .6534 .6127 .7193 .6840 .6052 .8465 .8527 .8517 .8464 .8264 .8327 .8157 .8215 .8336

omcm1.11 Reducingoverengineeredspecification omcm1.31 Reducingcomplex/bureaucraticprocessesand paperwork omcm1.41 Makingspecificationsconsistentwithindustry standards omcm1.51 Usingmoresimplifieddesigns omcm1.61 Commonizingmaterialspecificationsacross <<MFGR>>divisions omcm1.71 Standardizingpartsacross<<MFGR>> divisions omcm1.81 Commonizingvalidationprocessacrossgoods
a

EstimatedusingSPSSv11.5.0reliabilityanalysis

Table5.67: Reliabilitystatisticsforinterfirmqualitymanagement a
Identifier Item Corrected AlphaIf Alpha Std. ItemTotal Item Alpha Correlation Deleted .5004 .5927 .2980 .4863 .6463 .6448 .3493 .7483c

omqi4.10 Qualityofgoodsishurtbynotreceivingtimely qualityrelatedfeedback omqi4.91 Qualityofgoodsishurtbylackofspecific qualityrequirements omqi4.21 Qualityofgoodsishurtbyhavingcost pressuresoverridequalityconcernsb

a b c

EstimatedusingSPSSv11.5.0reliabilityanalysis Omittedfromfurtheranalysis Cronbachsalphafortherevisedinterfirmqualitymanagementconstruct

5.7.3 ConvergentandDiscriminantValidity Convergentanddiscriminantvaliditywasassessedbyapplyingprincipalcomponentsanalysis totheentiresetofmeasuresthatcomposethebarrierstotechnologysharinglackofinterest, barriers to technology sharingfear of information misappropriation, cost improvement

219

opportunities, and interfirm quality management constructs. Convergent validity is suggested when measures load highly onto their intended constructs. As reported in Table 5.68, the KaiserMeyerOlkin measure and Bartletts test of sphericity indicate the acceptabilityofthefactoranalysesandthemagnitudeofallfactortointendeditemloadings isgreaterthan0.5(Zhangetal,2003). Itemlevel discriminantvalidityisevidencedwhenmeasuresdonotsubstantivelyload ontounintendedconstructs.Table5.68suggestsonesubstantivecrossloading(underlined) between omcm1.71 and the technology sharinglack of interest construct ( = 0.442). All other potential crossloadings (47/48 or 98%) appear inconsequential. Further evidence of discriminant validity is provided by noting that the lowest factortoitem loading for each constructishigherthanallothercrossloadings(Chin,1998a). FollowingtheapproachofPrahinskiandBenton(2004),constructleveldiscriminant validity was assessed by evaluating the correlations between each latent factor. Construct leveldiscriminantvalidityisevidencediftheconfidenceintervalofaninterfactorcorrelation does not include one (Anderson and Gerbing, 1988). Table 5.69 presents the interfactor correlations for the barriers to technology sharinglack of interest, barriers to technology sharingfearofinformationmisappropriation,costimprovementopportunities,andinterfirm quality management constructs. As noted in the table, all correlations are significant (p < .001)andlessthan0.5.Accordingly,discriminantvalidityisevidencedaseachoftheinter factorcorrelationsissignificantlydifferentthanone.

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Table5.68: Operational benefitsrotatedcomponentmatrixa,b

Construct Construct CostImprovement Opportunities Item Identifier omcm1.11 omcm1.31 omcm1.41 omcm1.51 omcm1.61 omcm1.71 omcm1.81 Technology SharingFearof Information Misappropriation Technology SharingLackof Interest omts2.81 omts2.91 omts2.10 omts2.21 omts2.31 omts2.61 omts2.13 InterFirmQuality Management
a

CostImp TechShar TechShar Interfirm Opportunit InfoMis LackInt Quality Mgt .639 .573 .734 .720 .752 .720 .693 .089 .088 .062 .071 .229 .127 144 .115 .118 .301 .295 .067 .066 .038 .070 .024 .753 .846 .837 .171 .261 .200 .375 .019 .146 .162 .043 .060 .124 .371 .442 .285 .228 .251 .218 .709 .658 .653 .523 .335 .078 .163 .088 .298 .120 .054 .043 .075 .078 .067 .002 .111 .101 .158 .138 .796 .871

omqi4.10 omqi4.91 omqi4.21

c

b c

LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysiswithVarimaxrotation, n=311 KaiserMeyerOlkinmeasure=.800Bartlettstestofsphericity=2029.96 (p<.001) Droppedduringreliabilityanalysis

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Table5.69:Operationalbenefitsinterfactorcorrelationsa,b
Construct Construct CostImprovement Opportunities Correlation N CostImp TechShar TechShar Quality Opportunit InfoMis LackInt Improve 1 0.274 405 0.412 406 0.359 415 1 0.487 400 0.327 401 1 0.365 402 1

TechnologySharing Correlation FearofInformation N Misappropriation TechnologySharing Correlation LackofInterest N InterFirmQuality Improvement

a b

Correlation N

LoadingsestimatedusingSPSSv11.5.0Pearsonbivariatecorrelationwithpairwisedeletion Allcorrelationsaresignificantatp<.001

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CHAPTER6 TESTSOFHYPOTHESES
This chapter describes the tests of hypotheses developed within Chapter 3 and presents the resultsofeachtest.Discussionofthetestsofhypothesesisdividedintofivemainsections. 6.1reportstheresultsofhypothesesoneandtwo,whichinvolvetheassessmentofamulti dimensionalmodelofrelationshipcloseness.Inthenextsection(6.2),thecausalmodelof relationshipcloseness istestedandtheresultsarereported.6.3developsacomprehensive approachtoclusteranalysisthisprocedureisthenusedtotesthypothesisseven,whichposits that buying firms simultaneously manage several sets (clusters) of supplier relationships characterized by varying degrees of relationship closeness. In the final two sections, the extent to which supply management practices (hypotheses eight through eleven) and operational benefits (hypotheses twelve through sixteen) differ across supplier relationship clusters is examined. In aggregate, hypothesis testing requires a wide array of analytical methods including confirmatory factor analysis, path analysis, cluster analysis, analysis of variance,andmultiplecomparisontests. 6.1 BuyerSupplierRelationshipClosenessFactorModel

Hypotheses one and two address the dimensionality and nomological validity of the relationshipclosenessconstruct.Drawingfrompreviousbuyersupplierrelationshipliterature (BentonandMaloni,2005HeideandJohn,1992MaloniandBenton,2000Noordewieret al.,1990PrahinskiandBenton,2004),thefirsthypothesisassertsthatrelationshipcloseness isamultidimensionalconstructthatconsistsofthefollowingdimensions:trust,commitment, shared benefit, flexibility, informationexchange, and solidarity. Followingtheexamplesof Bensaou and Anderson (1999, p. 471) and Narasimhan et al. (2001, pp. 1112),the second

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hypothesisinvolvesatestofthenomologicalvalidityofrelationshipclosenessconstruct.In particular, hypothesis two posits a positive relationship between relationship closeness and relationshipgoodness.Theformalhypothesesarelistedbelow:

H1:

Buyersupplier relationship closeness can be modeled as a secondorder latent construct, consisting of the following six elements: (a) trust, (b) commitment, (c) sharedbenefit,(d)flexibility, (e)informationexchange,and(f)solidarity.

H2:

Buyersupplierrelationshipclosenessispositivelyrelatedtosuppliersperceptionof thegoodnessoftheoverallrelationship.

Hypothesisonewastestedusingaprogressionofconfirmatoryfactoranalyses.Inthe firststep,constructvaliditywasassessedforeachmultiitemfirstorderfactorthatcomposes relationshipcloseness. Initially,unidimensionalitywasestablishedforeachmultiitemfirst orderfactorbyexaminingeachfirstorderfactorindependently. Resultsfromtheassessment ofeachsinglefactormeasurement modelshowedsignificantfactortoitempathcoefficients (seeTables5.11,5.12,5.13,5.14,and5.15)andacceptablescalereliability(seeTables5.16, 5.17, 5.18, 5.19, and 5.20). Next, discriminant validity was evaluated using a pairwise

modelingapproach(GarverandMentzer,1999).Thisanalysisindicatedasinglesubstantive itemtofactor crossloading between a measure of commitment and the solidarity construct (seeTable5.26).Inthethirdstep,convergentanddiscriminantvaliditywasassessedusing thefullfirstordermeasurementmodelfindingsfromthefullmeasurementmodelsuggested a threat to discriminant validity posed by the trustcommitment pairing. As such,

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commitment was dropped from the full measurement model and subsequent secondorder factoranalyses. Resultsfromtherevisedfullmeasurementmodelshowacceptablemodelfit (seeTable5.30,footnoteb)andservetoconfirmtheconvergentanddiscriminantvalidityof the information sharing, trust, solidarity, and shared benefit constructs. Additionally,

analysis of the revised full measurement model indicates that each interfactor correlation between the firstorder factors that compose relationship closeness is significant at the p .001 level (see Table 5.30) the significant correlations between firstorder factors, coupled with the validation of each firstorder factor, suggest the appropriateness of representing relationshipclosenessasasecondorderfactor. Inthesecond stepofanalysis,relationshipclosenesswas modeledasa secondorder factor model that consists of four firstorder factors (trust, shared benefit, information exchange, and solidarity) that are measured with 11 observable variables. As reported in Table5.32(footnotea),modelfitwasacceptable,allsecondorderfactortofirstorderfactor path coefficients were significant, and all firstorder factor to observable variable path coefficientsweresignificant. Theseresults lend supporttothesuppositionexpressed inthe firsthypothesis. In the final step of analysis, the efficacy of the secondorder factor model was contrastedwithtwoalternate modelsofrelationshipcloseness:(1)asingle firstorderfactor modeland(2)afourfirstorderfactormodel. AsnotedinTable5.33,thesecondorderfactor model exhibited much stronger goodness of fit as compared to the single firstorder factor model.TheTargetCoefficient (MarshandHocevar,1985)wasthenusetoassessthe fitof thesecondorderfactormodelrelativetothe fourfirstorderfactormodel.Assuggestedby the results, the fit of the secondorder factor model contrasts reasonably well with the four

225

firstorderfactormodel,butoffersamoreparsimoniousrepresentation.Theseresultssupport thevalidityofthesecondorderfactormodel. Inaggregate,theresultsofthisthreestepvalidationprocesssupporttheargumentthat buyersupplier relationship closeness can be modeled as a secondorder latent construct, consisting of the following four firstorder factors: trust, shared benefit, information exchange,andsolidarity. Assuch,hypotheses1a(trust),1c(sharedbenefit),1e(information sharing), and 1f (solidarity) are supported. However, there is no support for hypotheses 1b (commitment)and1d(flexibility). Thesecondhypothesisconcernsthenomologicalvalidityoftherelationshipcloseness construct and posits a positive relationship between relationship closeness and relationship goodness.Asdefinedin4.2.1,relationshipgoodnessreferstotheextenttowhichtheoverall exchangerelationship isperceivedas beneficial.Beforetesting hypothesistwo,thevalidity of the relationship closeness and relationship goodness construct was assessed using a progressionofconfirmatory factoranalyses. FollowingtheexampleofZhangetal.(2003), relationship closeness was reduced to a firstorder construct by aggregating the observable variables for each dimension of relationship closeness (as represented in Figure 5.14). In particular, observable measures were used to calculate the mean for trust, shared benefit, informationexchange,andsolidarity.Additionally,asingleflexibilityindicatorwasusedto represent the flexibility dimension. The unidimensionality of this singlefactor model was then assessed using confirmatory factor analysis. As reported in Table 5.34 (footnote b), model fit was acceptable and all path coefficients were significant. Additionally, the scale reliabilityforthisfirstordermodelofrelationshipclosenesswasacceptable(seeTable5.35).

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Confirmatory factor analysis was also conducted for the relationship goodness construct. As presented in 5.4, the unidimensionality (5.4.1), reliability (5.4.2),

convergent validity (5.4.3), and discriminant validity (5.4.3) was established for the relationshipgoodnessconstruct.Results fromthisanalysis showedacceptable model fit for the full measurement model (see Table 5.38, footnote a), significant factortoitem path coefficients (see Table 5.36) acceptable scale reliability (see Tables 5.37), no substantive itemtofactorcrossloadingsinthefullmeasurementmodel(seeTable5.38),andacceptable discriminantvalidityattheconstructlevel(seeTable5.40).Theseresultsconfirmthevalidity oftherelationshipgoodnessconstruct. Hypothesis two was tested by assessing the interfactor correlation between relationshipclosenessandrelationshipgoodness.AsindicatedinTable5.39,thecorrelation betweenthese factors is0.93(p<.001). Thisresultsupportshypothesistwoandbeginsto establish the nomological validity of the relationship closeness construct. Thus, hypothesis twoissupported. 6.2 BuyerSupplierRelationshipClosenessCausalModel

Hypothesesthreethroughsixassertthatrelationshipclosenessisdirectlyaffectedbyabuying firmsuseofdistributiveandintegrativesupply managementpracticesandindirectlyrelated tothestrategicimportanceofthesupplyrelationship.Thesehypothesesarelistedbelowand summarizedin theempiricalmodel presentedinFigure6.1.

H3:

Buyersuseofintegrativesupplymanagementpracticesispositivelyrelatedtobuyer supplierrelationshipcloseness.

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H4:

Buyers use of distributive supply management practices is negatively related to buyersupplierrelationshipcloseness.

H5:

Thestrategicimportanceofasupplyrelationshipispositively relatedtothebuyers useofintegrativesupplymanagementpractices.

H6:

Thestrategicimportanceofasupplyrelationshipisnegativelyrelatedtothebuyers useofdistributivesupplymanagementpractices.

Prior to assessing hypotheses three through six, the validity of the integrative and distributivesupplymanagementconstructswasassessedusingaprogressionofconfirmatory factor analyses. As presented in 5.5, unidimensionality (5.5.1), reliability (5.5.2), convergent validity (5.5.3), and discriminant validity (5.5.3) were established for the integrativeanddistributive supply managementconstructs.Results fromthis analysisshow acceptablemodelfit forthefullmeasurementmodel(seeTable5.49,footnoteb),significant factortoitem path coefficients (see Table 5.41 and 5.42) acceptable scale reliability (see Tables5.43and5.44),twosubstantiveitemtofactorcrossloadingsinthefullmeasurement model(seeTable5.48),andacceptablediscriminantvalidityattheconstructlevel(seeTable 5.50). These results generally confirm the validity of the integrative supply management practiceanddistributivesupplymanagementpracticeconstructs. AssuggestedinFigure6.1,asinglesetofsimultaneousequationswasusedtoassess hypothesesthreethroughsix. Inparticular, modelparameterswereestimatedusingthe full response dataset (n=425), maximum likelihood estimation, and estimation of means and

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1 interceptstocompensateformissingdata(Byrne,2001) .Table6.1presentsacompositeof

goodness of fit measures for the causal model of relationship closeness.

The model fit

indices(NFI=0.873,RFI=0.826,TLI=0.871,andCFI=0.906)generallyfallwithinthe acceptablerangeof0.800to0.899,asdescribedbyZhangetal.(2003).Additionally,the RMSEA value of 0.075 falls within the recommended range of 0.05 to 0.08, providing additionalevidenceofacceptable fit.Thesignificantchisquare is indicativeofpoormodel fithowever,thesignificantchisquareresultmaybeanartifactofthelargesamplesizerather than an indication of poor model fit (Byrne, 2001). Finally, the chisquare to degrees of freedom ratio is 3.37, slightly greater than the recommended cutoff of 3.0 (Zhang et al., 2003). In aggregate, the aforementioned fit statistics suggest acceptable, but not good modelfit(Zhangetal.,2003). Additional evidence of model fit is gained by assessing the percentage of explained variance for each of the endogenous factors. As noted in Table 6.3, integrative and distributive supply management activities explain 71.7% of the variance in relationship closeness. Additionally, the strategic importance of the supply relationship explains 26.2% and 6.2% of the variance in integrative and distributive supply management activities, respectively. Table6.4presentsthestandardizedloadingforeachindicatorvariable.Asreportedin thistable,allstandardizedfactorloadingsaresignificantatthep<.001level.

AppendixBpresentsresultsforarevisedmodelinwhichthebqcc2.51manifestvariable,whichmayposea threatthevalidity ofthedistributiveactivityconstructduetosubstantivecrossloadingswiththeintegrative activity and relationship closeness constructs (see Table 5.48), is omitted. Thus, for the revised model, distributiveactivityismeasuredwiththreeobservablevariables:bqcc2.21,bqcc2.31,andbqcc2.41(seeFigure B.1).AsnotedinAppendixB,estimatesfortherevisedmodelareconsistentwiththosepresentedinTables 6.1through6.4.

229

ThepathcoefficientslistedinTable6.2maybeusedtotesthypothesesthreethrough six. Hypothesisthreepositsapositiverelationshipbetweenabuyingfirmsuseofintegrative supply management practices and relationship closeness. As shown in Table 6.2, the standardized path coefficient associated with the relationship between integrative supply managementpracticesandrelationshipclosenessispositive(=0.838)andissignificant(p< .001). Thisfindingprovidesstrongsupportforhypothesisthree. Hypothesis four asserts that a buying firms use of distributive supply management practices is negatively related to relationship closeness. Contrary to the assertion of this hypothesis, the standardized path coefficient associated with the relationship between distributive supply management practices and relationship closeness is positive ( = 0.054) butnotsignificant(p =.256).Thisfindingprovidesnosupportforhypothesisfour. Hypothesis five argues that the strategic importance of a supply relationship is positively related to a buying firms use of integrative supply management practices. Consistent with this assertion, the path coefficient associated with the relationship between the strategic importance of the relationship and integrative supply management practices is positive ( = 0.512) and significant (p < .001). This finding provides strong support for hypothesisfive. Hypothesis six contends that the strategic importance of a supply relationship is negatively related to a buying firms use of distributive supply management practices. Contrary to this assertion, the path coefficient associated with the relationship between the strategicimportanceofthebuyersupplierrelationshipandabuyingfirmsuseof distributive supplymanagementpracticesispositive(=0.248)andsignificant(p<.001).Thisfinding

230

provides no supportforhypothesis six. Theresultsofthetestsof hypothesesthreethrough sixaresummarizedinTable6.5.

Table6.1:Relationshipclosenesscausalmodel fitstatistics
FitIndex (df) /(df) NFI RFI TLI CFI RMSEA
a

Value
a

377.87(112) 3.37 .873 .826 .871 .906 .075

p<.001

Table6.2:Relationshipclosenesscausalmodel structural pathcoefficients

Path Relationshipimportanceto Integrativepractices Distributivepractices Integrativepracticesto Relationshipcloseness Distributivepracticesto Relationshipcloseness
a b

StdPath Coefficient .512 .248 .838 .054

tvalue

8.435a 3.485a 7.069a 1.137b

p<.001 p>.10

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Table6.3:Relationshipclosenesscausalmodel explainedvariance
EndogenousFactor Integrativepractices Distributive practices Relationship Closeness
2 R

.262 .062 .717

Table6.4:Relationshipclosenesscausalmodel indicator pathcoefficients

Identifier Item Standardized Loading .392 .666 .821 .640 .654 .697 .629 .834 .724 .720 .710 tvalue

DistributiveActivityto bqcc2.21 Yourfirmfeelspressuretoreducetotalcost bqcc2.31 Yourfirmfeelspressuretoimprovequality bqcc2.41 bqcc2.51 Yourfirmfeelspressuretoimprovedelivery Yourfirmfeelspressuretoupgradetechnology

Constrained 6.62a 6.74a 6.52a Constrained 18.80a 13.09a 13.85a 12.49a 12.40a 12.35a

IntegrativeActivityto bqcc3.11 <<MFGR>>helpsreducecosts bqcc3.21 <<MFGR>>helpseliminatewaste <<MFGR>>helpsimprovequality <<MFGR>>workswithyourfirmonsupplychain designimprovement bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturing bcpp15.3 <<MFGR>>workswithyourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain RelationshipClosenessto m_infosh Meanofomc4.11,omc4.21,omc4.31 m_trust m_solida bcpp4.1
a

bqcc3.31 bcpp15.1

.406 .745 .648 .511 .648

Constrained 7.60a 7.28a 6.60a 7.22a

Meanofbocwr1.1,bocwr4.1,bocwr9.1 Meanofbfr3.1,bfr4.1,bfr5.1 <<MFGR>>givesflexibilitytomeetcostobjectives

m_shbene Meanofbfr1.11,bfr1.21
p<.001

232

Figure6.1: Relationshipclosenesspathdiagram

bqcc2.21

e11 e12 e13 e14

Distributive Practices

bqcc2.31 bqcc2.41 bqcc2.51

d2

H4:()

H2:()
m_infosh m_trust

e1 e2 e3 e4 e5

Relationship Importance

Relationship Closeness

m_solida m_shbene bcpp4.1

d3

H3:(+)

H1:(+)
bqcc3.11 bqcc3.11 bqcc3.21 e21 e22 e23 e24 e25 e26 e27 e28

Integrative Practices

bcpp15.1 bcpp15.2 bcpp15.3

d1 omr1.1 bcpp6.1

233

Table6.5:Resultsofhypothesesthreethroughsix
Hypothesis Number 3 4 5 6 Assertion Positiverelationshipbetweenintegrativesupplymanagement practicesandrelationshipcloseness Negativerelationshipbetweendistributivesupplymanagement practicesandrelationshipcloseness Positiverelationshipbetweenstrategicimportanceofsupply relationshipandintegrativesupplymanagementpractices Negative relationshipbetweenstrategicimportanceofsupply relationshipanddistributivesupplymanagementpractices Result Supported NotSupported Supported NotSupported

6.3

CharacterizingtheRelationshipPortfolio

Thecentralpremiseofsupplierportfoliomanagementtheory isthatbuyingfirmsmanagesets of supplier relationships that vary in terms of relationship closeness (Wagner and Johnson, 2004).Thispremiseisformalizedinhypothesisseven,whichislistedbelow.

H7:

A buying firm simultaneously manages sets (clusters) of supplier relationships characterizedbyvaryinglevelsofbuyersupplierrelationshipcloseness.

An approach based on cluster analysis was used totest the tenability of the seventh hypothesis. To facilitate the classification of observations into homogeneous clusters, the means of the six dimensions of relationship closeness served as classification criteria. As such, informationsharing,solidarity,trust,commitment,shared benefit,and flexibilitywere used to empirically determine the nature of the distribution of close relationships across a single buying firms supply base. As discussed in section 4.5.2, cluster analysis was achieved through the sequential application of SPSSs Wards minimum variance method

234

(squaredEuclideandistance)andKmeans(quickcluster)iterativepartitioning(Frohlichand Westbrook,2002, p. 736). Prior to the initiation ofthe cluster analysis process, the discriminant validity of the classification criteria was reestablished. Following the example of Prahinski and Benton (2004),the interfactorcorrelations andtheirassociatedstandarderrorswereassessedusing bivariateanalyses. Foreachpairing,Table6.6reportsthecorrelations inthe lowertriangle andthestandarderrorforeachcorrelation inthe uppertriangle. Discriminantvaliditywas assessed by constructing a 95% confidence interval for each correlation estimate by adding andsubtractingtwicethestandarderror. Discriminantvalidityisevidencedasthecorrelation confidenceintervalforeachpairofclassificationcriteriadoesnotincludeone(Andersonand Gerbing,1988).

Table6.6: Correlations(lowertriangle)andstandarderrors(uppertriangle)forclassification criteriaa

Information Sharing Information Sharing Shared Benefit Solidarity Trust Commitment Flexibility
a

Shared Benefit .045 1 .329 .336 .372 .330

Solidarity .057 .037 1 .530 .497 .417

Trust .054 .057 .041 1 .781 .479

Commitment Flexibility .040 .037 .043 .031 1 .443 .047 .046 .054 .052 .053 1

1 .207 .184 .336 .275 .307

Allcorrelationssignificantatp<.001

235

IntegratingtherecommendationsofKetchenandShook(1996)andPunjandStewart (1983), this research employs a multistep approach to cluster analysis to test hypothesis seven. As presented in Figure 6.2, the first step in this process involves the random assignment of responses to calibration and holdout groups. As such, the sample was randomlysplitintocalibrationandholdoutgroupsintwophases.First,responserecordsfrom common respondents (i.e., suppliers who provided response data for two different relationshipswiththe focalautomotive components manufacturer)were identified. Forthis group, responses were randomly assigned into groups such that both the holdout and the calibration sample consisted of a unique set of respondents. In the subsequent phase, the remaining observation records were randomly assigned to the calibration and holdout samples.Theimplementationofthefirststepresultedinthecreationofthetwosamples:(1) a calibration sample with 197 observations and (2) a holdout sample with 196 observations (32 observationswereomittedfromclusteranalysisduetomissingdata).

236

Figure6.2:Stepwiseapproachtoclusteranalysis

Step1. Randomlysplitresponsedatasetintocalibrationandholdoutsamples.

Step2. Applyahierarchicalclusteringalgorithm(i.e.,Wardsminimumvariance method)tothecalibrationsampleanddeterminetheappropriatenumberofclusters.Use resultingcentroidsasstartingseedsforapplicationofanonhierarchicalclustering algorithm(i.e.,Kmeansiterativepartitioning)onthecalibrationsample.

Step3. ApplyWardsmethodtotheholdoutsample.Useresultingcentroidsasstarting seedsforapplicationofKmeansiterativepartitioningontheholdoutsample.

Step4. ApplyKmeansiterativepartitioning toholdoutsampleusingcentroidsobtained fromthecalibrationsample.

Step5. Assessthelevelofclassification consistencyacrossclustersolutionsfromstep3 andstep4.Assesstheconsistencyofdescriptivestatisticsacrosscalibration(step2)and holdoutsamples(step3).

Step6. Combineholdoutandcalibrationsamples.ApplyWardsmethod,thenKmeans iterativepartitioningtotheentireresponsedataset.

Step7. Assesstheextenttowhichexternalvariablessignificantlydifferacrossclusters.

237

The second step of the cluster analysis procedure involves the application of cluster analysistothecalibrationsample.AsrecommendedbyKetchenandShook(1996)andPunj and Stewart (1983) and implemented by Frohlich and Westbrook (2002), Wards minimum variance method was first applied to the calibration sample. Following the guidance of KetchenandShook(1996),twomethodswereusedtodeterminethe appropriatenumberof clusters for the final solution. First, the resulting dendogram was inspected to review the order of cluster agglomeration and assess the similarity of the combined clusters. Visual inspectionofthedendogramsuggestedthatthecreationofafourclustersolutionmayinvolve thecombinationoftworelativelydissimilarclustersthisprovided initialsupportforafive clustersolution.Inthesecond method,theincrementalchange inagglomerationcoefficient was evaluated. A notable increase in the agglomeration coefficient indicates the joining of dissimilarclusters.Table6.7presentstheagglomerationcoefficientsfortheone throughten clustersolutions.Asreportedinthetable,thechangeintheagglomerationcoefficientbegins toincreasewiththecreationofthefourclustersolution. KetchenandShook(1996)suggest thatanoticeablechangeinagglomerationcoefficientmaybereadilydetectedusinggraphical means. Thus,Figure6.3presentsagraphoftheagglomerationcoefficientinwhichthexand yaxesrepresentthenumberofclustersinthefinalsolutionandthecorrespondingchangein agglomerationcoefficient,respectively.Asnotedwithintheplot,thereisanoticeablepoint of inflection associated with the fivecluster solution. As such, the evaluation of the dendogram and changes in the agglomeration coefficient initially suggest that a fivecluster maybeappropriate.

238

Table6.7: Agglomerationcoefficients
Numberof Clusters Agglomeration Coefficient Changein Agglomeration Coefficient 286.397 171.161 76.883 50.679 40.605 33.930 33.053 32.727 30.245 Incremental Changein Agglomeration Coefficient 115.236 94.278 26.204 10.074 6.675 0.877 0.326 0.482

1 2 3 4 5 6 7 8 9 10

1164.000 877.603 706.442 629.559 578.880 538.275 504.345 471.292 438.565 408.320

Figure6.3: Plotofchangeinagglomerationcoefficientversusnumberofclusters

350 300 250

ChangeIn Agglomeration Coefficient

200 150 100 50 0 2 3 4 5 6 7 8 9 10

NumberofClusters

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Continuingwiththesecondstepofclusteranalysis(aslistedinFigure6.2),Kmeans iterativepartitioningwasappliedtothecalibrationsample.Forthisanalysis,thenumberof clusterswassettofiveandthe initialcentroids foreachclusterwerespecified basedonthe results of the application of Wards method of hierarchical clustering on the calibration sample.TheresultsoftheKmeansclusteringalgorithmwerethensaved forassessmentas outlinedinstep5. The third step in the cluster analysis procedure (see Figure 6.2) involves the applicationofclusteranalysistotheholdoutsample. Accordingly,Wardsminimumvariance method was applied to the holdout sample. Subsequently, cluster membership was refined using Kmeans iterativepartitioning.FortheKmeansanalysis,the numberofclusterswas againsettofiveandtheinitialcentroidsforeachclusterwerespecifiedbasedontheresultsof the application of Wards method of hierarchical clustering on the holdout sample. The resultsoftheKmeansclusteringalgorithmwerethensavedforassessmentasoutlinedinstep 5. Inthefourthstepoftheclusteringprocedure,Kmeansclusteringwasagainappliedto the holdoutsample. As in step3,the numberofclusterswassettofive.However, inthis iteration,centroidsobtainedfromtheapplicationofWardsmethodonthecalibrationsample wereusedastheinitialseedsforKmeansclustering.TheresultsoftheKmeansclustering algorithmwerethensavedforassessmentasoutlinedinstep5. In step five, the reliabilityand the external validityof the fivecluster solution were assessedusingcrossvalidationprocedures. Punj andStewart(1983)arguethatthestability of the clustering solution must be established before the classification may be accepted or

240

used. Ketchen and Shook (1996) define the reliability of a cluster solution in terms of consistencyacrossmultiplesolutionsandsuggestacrossvalidationmethodforassessingthe reliabilityofaclustersolution.Inthefirstapproach,thereliabilityofaclustersolutionmay beevaluatedbyexaminingtheofconsistencyoftheclustersolutionsfortheholdoutsample when(1)centroidsfromtheapplicationofWardsmethodontheholdoutsampleareusedas initial seeds fortheapplicationofKmeans iterativepartitioningontheholdout sample and (2) centroids from the application of Wards method on the calibration sample are used as initialseedsfortheapplicationofKmeansiterativepartitioningontheholdoutsample. The extenttowhichobservationsareassignedtothesameclustersaftersuccessiverunsoftheK means clustering algorithm on the holdout sample indicate reliability (Ketchen and Shook, 1996,p.447).Thecoefficientofagreement(kappa)maybeusedasanobjectivemeasureof stability(Punj andStewart,1983,p.146) Implementation of the aforementioned crossvalidation process involves the assessment of consistency across solutions obtained from step 3 and step 4 (Figure 6.2). Table6.8reportstheextenttowhichsuccessiverunsofKmeansiterativepartitioningusing initial seeds from calibration and holdout samples results in consistent cluster membership assignments.Thediagonalofthetablerepresentsthenumberofobservationsthathavebeen classifiedinthesameclusteracrossrunsoftheKmeansalgorithm.Assuggestedinthetable, 74.49% (146/196) of the observations were classified in the same cluster across successive runs.Theresultingcoefficientofagreement(kappa)is0.680,whichissignificantatp<.001. FollowingthesuggestionofPunjandStewart(1983),theseresultsindicatethatthereliability ofthefiveclustersolutionisacceptable.

241

Table6.8: Crossvalidationoffiveclustersolution splitsampleclassificationanalysis1

Cluster Membership2 (HoldoutCentroids) 1 2 3 4 5 Total KappaStatistic (measureofagreement)
1 2

ClusterMembership (CalibrationCentroids)3 1 29 0 0 0 0 29
a

2 0 36 0 0 0 36 .680

3 0 0 31 2 14 47

4 0 0 1 46 1 48

5 8 15 0 9 4 3

Total 37 51 32 57 19 196

Numberofcasesintheholdoutsamplethatareclassifiedinthesamecluster usingcentroidsfromcalibrationandholdoutsamples HoldoutsampleclustermembershipusingKmeansiterativepartitioningand initialcentroidsfromthe(same)holdoutsampleusingWardsmethodof hierarchicalclustering(SPSSv11.5.0) HoldoutsampleclustermembershipusingKmeansiterativepartitioningand initialcentroidsfromthecalibrationsampleusingWardsmethodof hierarchicalclustering(SPSSv11.5.0) p< .001

Oncereliability,orthestabilityoftheclusteringsolution,isestablished,Ketchenand Shook (1996) suggest that external validity should be assessed. External validity may be assessed by clusteranalyzing bothacalibrationand holdoutsample andthenexaminingthe similarity of the results (Ketchen and Shook, 1996, p. 447). Following the example of Frohlich and Westbrook (2002), the consistency ofdescriptive statistics across independent assessmentsofthecalibration(step2)andholdoutsamples(step3)wereassessed. Table6.9 reportsthesizeandmeanofeachclusterforeachclassificationcriteriaforboththecalibration and holdout solutions. As noted within Table 6.9, cluster two and cluster five generally maintainthehighestandlowestmeans(respectively)foreachclassificationvariableforboth thecalibrationandholdoutsamples.However,therankorderofmeansforclusters one, three,

242

andfourtendstovaryacrosssamplesforeachclassificationcriteria.Assuch,resultsofthe subjective assessment of the external validity of the fivecluster solution may be best describedasinconclusive.

Table6.9: Crossvalidationoffiveclustersolution splitsampledescriptiveanalysis1

HoldoutSampleClusterCenters Classification 1 2 3 4 5 Variables n=37 n=51 n=32 n=57 n=19 Information Sharing Trust Solidarity Commitment Shared Benefit Flexibility
1

CalibrationSampleClusterCenters 1 2 3 4 5 n=34 n=24 n=47 n=52 n=40 4.23 3.04 1.83 2.98 3.22 2.47 4.71 3.21 4.17 2.08 3.09 1.54 4.04 2.02 2.38 1.50 3.75 1.40 3.62 3.11 2.29 2.98 1.52 2.44 3.52 3.58 2.93 3.47 3.21 3.03

3.74 2.79 1.88 2.88 3.24 2.68

4.35 3.86 3.20 3.78 3.06 3.20

3.57 3.83 1.84 3.17 1.38 2.15 1.84 3.15 1.48 1.51 1.44 2.35

1.52 2.47 1.96 2.64 1.66 1.32

Forbothholdoutandcalibrationsamples,clustercenterswerecalculated usingtwostepprocess:(1)Wardsmethodwasusedtocalculatecentroids (2)Kmeansiterativepartitioning,usingcentroidsfromWardsmethod(step 1)wasusedtorefineclustermembership

Thesixthstepoftheclusteringprocess(Figure6.2)involvesthesequentialapplication of Wards method of hierarchical clustering and then Kmeans iterative partitioning to the entire response dataset. For this step, Kmeans clustering was accomplished using a five cluster solution and the initial seeds from the preceding Wards minimum variance method analysis.Table6.10reportsthesize,mean,andstandarddeviationforeachclusterandeach classification variable. Generally, cluster 2 tends to maintain the highest means across classification variables while clusters 4 and 5 maintain the lowest means. For each classificationvariable,themeandifferencesacrossclusterswereassessedusingSPSSsone

243

way ANOVA followed by tests of mean differences using SPSSs Dunnets C multiple comparisontests. Accordingly,Table6.10alsoreportsLevenesstatistic,theFratioorthe BrownForsythe Fratio for each oneway analysis of variance, and the results ofpairwise testsofmeandifferencesforeachclassificationvariableacrossclusters. AsnoteinTable6.10,Levenesstatisticissignificantforthesolidarity,commitment, andsharedbenefitclassificationvariablesthesefindingssuggesttheviolationoftheANOVA assumption of variance homogeneity. Glass and Hopkins (1996, pp. 405406) assert With unbalanced designs, ANOVA will yield accurate pvalues only when the homogeneity of varianceassumptionistenableandrecommendtheBrownForsytheFstatisticasalesswell known, but better procedure for ANOVA designs with unequal N and heterogeneous varianceacrossgroups. Assuch,theBrownForsytheapproachwasadoptedtoinitiallyassess thepresenceofasignificantdifferenceacrossclustersforcasesinwhichthehomogeneityof varianceassumptionisviolated. Table6.10reportstheFratioorBrownForsytheFratio(as appropriate)foreachclassification variable.As notedinthetable,eachratio is statistically significant, indicating the presence of at least one significant difference across clusters for eachclassificationcriterion. The violation of the homogeneity of variance assumption also has implications for multiplepairwisecomparisontesting.Usingcomputersimulation,Dunnett(1980)compared the performance of four pairwise multiple comparison procedures for the case in which comparedgroupshaveunequalvarianceresultsfromDunnetts(1980)studysuggestthatthe C procedure (Dunnetts C) is a conservative procedure and is particularly appropriate for comparisons involving heterogeneous variance across groups and large degrees of freedom. Consequently,DunnettsCapproachwasusedtoassessthesignificanceofmeandifferences

244

acrossclusters. Table6.10reportstheresultsofmultiplecomparisontestsacrossclustersfor eachclassificationcriteria. As shown inthetable,therearesignificantdifferences between eachclusterforatleastoneclassification variable.

Table6.10:Meansofclassificationvariablesforfiveclustersolution1,2
Cluster 1 Mean N Std.Dev. 2 Mean N Std.Dev. 3 Mean N Std.Dev. 4 Mean N Std.Dev. 5 Mean N Std.Dev. Levenes Statistic FRatio Brown Forsythe Fratio
1 2 a b c d e

Information Sharing
b,e

Trust
b,c,d,e

Solidarity Commitment Shared Benefit

b,d

Flexibility
b,d,e

3.84 103 .75

3.28 103 .51

2.15 103 .58

b,d,e

3.17 103 .49

b,c,e

1.49 103 .52

2.40 103 .82

a,c,d,e

4.41 86 .72

b,c,d,e

3.96 86 .53

b,c,d,e

3.26 86 .75

b,c,d,e

3.85 86 .52

a,d,e

3.03 86 .92

b,c,d,e

3.29 86 .82

b,e

3.69 95 .78 3.73 75 .73 1.54 34 .58 .41

a,b,d,e

3.03 95 .49 1.99 75 .58 2.29 34 .66 1.29

b,d

2.11 95 .65 1.53 75 .49 1.92 34 .75

b,d,e

3.05 95 .56 1.98 75 .63 2.32 34 .86

a,d,e

3.23 95 .59 1.47 75 .63 1.6 34 .73

b,d,e

2.67 95 .83 1.65 75 .78 1.38 34 .60 .95

b,e

a,b,c,e

a,b,c

a,b,c

b,c

a,b,c

a,b,c,d

a,b,c,d

a,b,c

b,c

a,b,c

5.18

3.34

5.00

94.79

156.13

59.38

77.63

97.19

135.85

InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctestsatp .05 p.001 p.01 GroupmeanissignificantlydifferentthanGroup1 GroupmeanissignificantlydifferentthanGroup2 GroupmeanissignificantlydifferentthanGroup3 GroupmeanissignificantlydifferentthanGroup4 GroupmeanissignificantlydifferentthanGroup5

245

The final step of the cluster analysis procedure outline in Figure 6.2 involves the assessment of criterionrelated validity. Ketchen and Shook (1996) suggest that criterion related validity may be evaluated by conducting significance tests across clusters using externalvariables,i.e.,variablesnotincludedintheclassificationprocess.Externalvariables shouldbethosevariablesthataretheoreticalrelatedtotheclusters,butnotusedtocreatethe clusters.Significancetestingofexternalvariablesacrossclustersisrecognizedasapowerful cluster validation tool due to the provision objective statistics (ex., Fratio, tstatistic, etc.), which do not rely on the judgment of the researcher (Ketchen and Shook, 1996). In this study, criterionrelated validity was assessed by examining the extent to which supply management practices differed across clusters. In particular, this study asserts that higher level selection criteria, comprehensiveness of supplier evaluation, buying firms use of competitivepressure,and buying firmsuseofdirectinvolvementvariesacrossrelationship clusters. Accordingly, Table 6.11 reports the results of oneway ANOVA and subsequent pairwisetestsofmeandifferencesforeachaforementionedsupplymanagementpracticefor thefiveclustersolution.ResultsoftheonewayANOVAindicatethepresenceofatleastone significantdifferenceacrossclustersforeachsupplymanagementpractice.However,closer examination reveals that there are no significant differences between clusters 1 and 3 and clusters4and5foranyofthesupplymanagementpracticesconsidered.Thisresultdoesnot support claims of criterionrelated validity for the fivecluster solution and indicates the inappropriateness of a fivecluster solution. As such, the clustering procedure outlined in Figure 6.2 was repeated for the fourcluster solution and the threecluster solution. As suggested by the results of the fivecluster solution, the fourcluster solution yielded two clusters (clusterthree and cluster four)that maintained no significant differences for any of

246

theaforementionedsupply managementpractices.Assuch,thefollowingparagraphsreport theresultsofthethreeclustersolution.

Table6.11: Testsofmeandifferencesofsupplymanagementpracticesforfivecluster solution1,2

Cluster HighLevel Selection Criteria Mean N Std.Dev. 2 Mean N Std.Dev. 3 Mean N Std.Dev. 4 Mean N Std.Dev. Mean N Std.Dev. Levenes Statistic FRatio Brown Forsythe Statistic
1 2 a b c d e

Comprehens. ofSupplier Evaluation

b,d

Competitive Pressure
b

Direct Involvement
b,d,e

b,d,e

18.73 103 12.75 28.09 83 13.69

2.76 87 .83 3.28 76 .99

3.09 102 .80 3.62 84 .78

2.28 101 .62 3.16 82 .68

a,c,d,e

a,c,d,e

a,c,d

a,c,d,e

b,d,e

20.85 93 14.61

b,d,e

2.80 86 .76

3.11 95 .67

b,d,e

2.51 93 .78

a,b,c

13.00 73 11.81 9.59 34 8.30

a,b,c

2.33 69 .80 2.38 31 1.04

2.93 75 .97 3.30 34 1.11

a,b,c

1.71 75 .59 1.64 33 .61

a,b,c

a,b,c

3.12

2.84

8.46

2.90

21.13

12.02

7.07

60.01

InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctestsatp .05 p.001 p.05 GroupmeanissignificantlydifferentthanGroup1 GroupmeanissignificantlydifferentthanGroup2 GroupmeanissignificantlydifferentthanGroup3 GroupmeanissignificantlydifferentthanGroup4 GroupmeanissignificantlydifferentthanGroup5

247

Using the clustering process outlined in Figure 6.2, steps two, three, and four were repeatedforthethreeclustersolution. Assuggestedinstepfive,theconsistencyofthethree clustersolutionwasfirstassessedbyexaminingtheextentofclustermembershipagreement acrosssuccessiverunsofKmeansclusteringontheholdoutsampleusinginitialseedsfrom calibration (step 3) and holdout samples (step 4). Table 6.12 reports the extent to which successiverunsofKmeansiterativepartitioningontheholdoutsample(usingcentroidsfrom calibration and holdout samples) result in consistent cluster membership assignments. As before, the diagonal of the table represents the number of observations that have been classifiedinthesameclusteracrosssuccessiverunsoftheKmeansalgorithm.Assuggested in the table, 100% (196/196) of the observations were classified in the same cluster across successiveruns.Theresultingcoefficientofagreement(kappa)is1.00,whichissignificantat p<.001.FollowingthesuggestionofPunjandStewart(1983),theseresultsindicatethatthe reliabilityofthethreeclustersolutionisacceptable.

248

Table6.12:

Crossvalidationofthreeclustersolution splitsampleclassificationanalysis1
Cluster Membership2 (HoldoutCentroids) 1 2 3 Total KappaStatistic (measureofagreement)
1

ClusterMembership (CalibrationCentroids)
3

1 57 0 0 57
a

2 0 74 0 74 1.000

3 0 0 65 65

Total 57 74 65 196

Numberofcasesintheholdoutsamplethatareclassifiedin thesameclusterusingcentroidsfromcalibrationandholdout samples HoldoutsampleclustermembershipusingKmeansiterative partitioningandinitialcentroidsfromthe(same)holdout sampleusingWardsmethodofhierarchicalclustering(SPSS v11.5.0) HoldoutsampleclustermembershipusingKmeansiterative partitioningandinitialcentroidsfromthecalibrationsample usingWardsmethodofhierarchicalclustering(SPSS v11.5.0) p.001

Next,theexternalvalidityofthethreeclustersolutionwasevaluated.Followingthe exampleofFrohlichandWestbrook(2002),theconsistency ofthedescriptivestatisticsacross independentassessmentsofthecalibration(step2)andholdoutsamples(step3)wasassessed. Table6.13reportsthesizeandmeanofeachclusterforeachclassificationcriteriaforboththe calibrationandholdoutsolutions.AsnotedwithinTable6.13,cluster2maintainsthehighest means for each classification variable for both the calibration and holdout samples. Additionally,therankorderofmeansforclusters1,2,and3isconsistentacrosscalibration and holdout samples for each classification variable. These results support the external validityofthethreeclustersolution.

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Table6.13: Crossvalidationofthreeclustersolution splitsampledescriptiveanalysis1

HoldoutSampleCluster Centers Classification Variables Information Sharing Trust Solidarity Commitment SharedBenefit Flexibility
1

CalibrationSampleCluster Centers 1 n=57 3.01 2.18 1.77 2.14 1.50 1.60 2 n=55 4.10 3.87 3.13 3.72 2.89 3.42 3 n=85 3.99 3.16 2.03 3.06 2.35 2.46

1 n=57 2.80 2.13 1.60 2.19 1.69 1.40

2 n=74 4.18 3.58 2.79 3.58 3.24 3.04

3 n=65 3.88 3.09 2.14 3.05 1.61 2.49

Forbothholdoutandcalibrationsamples,clustercenterswerecalculatedusing twostepprocess:(1)Wardsmethodwasusedtocalculatecentroids(2)K meansiterativepartitioning,usingcentroidsfromWardsmethod(step1)was usedtorefineclustermembership

AssuggestedinstepssixandsevenoftheclusteranalysisprocedureoutlinedinFigure 6.2, Wards method of hierarchical clustering and Kmeans iterative partitioning was sequentially applied to the entire response dataset. For Kmeans clustering, the number of clusterswassettothreeandcentroidsfromtheapplicationofWardsmethodservedasinitial seeds. Table6.14presentsthe size, mean,andstandarddeviation foreachclusterandeach classificationvariable.Additionally,Table6.14reportsresultsofANOVAtestsandpairwise meandifferencetestsfortheclassificationvariables.Asnotedinthetable,theappropriateF ratio for each classification variable is significant, indicating the presence of at least one significant difference for each classification variable across clusters. Followup multiple comparisons indicate that the means of trust, solidarity, commitment, and flexibility are significantly different for each cluster. These results further substantiate the threecluster solution andrepresentanoticeableimprovementoverthefiveclustersolution.

250

An evaluation of the pairwise comparison of means suggests that cluster two maintainsthe highestmeans foreachclassification variable. Assuch,thiscluster is labeled the close cluster. Conversely, cluster three, labeled as the distant cluster, consists of supplyrelationshipshavingthelowestaveragevalueforeachclassificationcriterion.Finally, clusterone is labeled intermediateasthiscluster includes supplierrelationshipsachieving intermediatelevelsofrelationshipcloseness.Forclusterone,themeansforallclassification variables are either significantly higher than those of cluster three or lower than those of clustertwo.

Table6.14: Meansofclassificationvariablesforthreeclustersolution1,2
Cluster 1 Mean Information Sharing
c

Trust
b,c

Solidarity Commitment Shared Flexibility Benefit

b,c

3.96 135 .74

3.10 135 .61

2.12 135 .63

b,c

2.99 135 .60

1.63 135 .65

b,c

2.49 135 .82

(Intermediate) N Std.Dev. 2 (Close) 3 (Distant) Mean N Std.Dev. Mean N Std.Dev. Levenes Statistic FRatio Brown Forsythe Fratio
1 2 a b c

4.10 151 .81

a,c

3.62 151 .63

a,c

2.80 151 .85

a,c

3.58 151 .59

a,c

3.20 151 .79

a,c

3.09 151 .82

a,b

2.85 107 1.10

a,b

2.13 107 .63 .36

a,b

1.62 107 .62

a,b

2.15 107 .76

1.71 107 .82 2.74

a,b

1.43 107 .58

7.55

9.48

6.75

4.21

178.15

196.52

67.05

91.12

145.60

155.88

InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctestsatp .05 p.001 p.05 GroupmeanissignificantlydifferentthanGroup1 GroupmeanissignificantlydifferentthanGroup2 GroupmeanissignificantlydifferentthanGroup3

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The final step of the cluster analysis procedure outline in Figure 6.2 involves the assessmentofcriterionrelatedvalidity.Inthisstudy,criterionrelatedvaliditywasassessed by examining the extentto which supply management practices differed across clusters. In particular,thisstudyassertsthathigherlevel supplierselectioncriteria,comprehensivenessof supplierevaluation,buyingfirmsuseofcompetitivepressure,andbuyingfirmsuseofdirect involvementvariesacrossrelationshipclusters.Accordingly,Table6.15reportstheresultsof oneway ANOVA and subsequent pairwise tests of mean differences for each aforementioned supply management practice for the threecluster solution. Results of one way ANOVA indicate the presence of at least one significant difference across clusters for each supply management practice. Assessment of pairwise comparison of supply managementpracticemeansacrossclustersindicatesthattherelativeimportanceofhighlevel selection criteria and the buying firms use of direct involvement activity are significantly differentacrosseachofthethreeclusters thecomprehensivenessofsupplierevaluationisnot statistically different between clusters one and two, but is significantly different across clusters one and three and clusters two and three the buying firms use of competitive pressureissignificantlydifferentbetweenclustersoneandtwoandclusterstwoandthree,but isnotsignificantlydifferentbetweenclustersoneandthree.Theseresultssupportclaimsof criterionrelatedvalidityforthethreeclustersolution.Assuch,assessmentsofreliabilityand external validity through crossvalidation (step 5) and criterionrelated validity (step 7) suggestthatthethreeclustersolutionisvalid.

252

Table6.15: Testsofmeandifferencesofsupplymanagementpracticesforthree clustersolution1,2

Cluster HighLevel Selection Criteria Mean Std.Dev. 2 (Close) 3 (Distant) Mean N Std.Dev. Mean N Std.Dev. Levenes Statistic FRatio Brown Forsythe Statistic
1 2 a b c

Comprehens. Competitive Direct ofSupplier Pressure Involvement Evaluation

c

b,c

18.04 135 12.57

2.85 116 .85

3.08 134 .82

b,c

2.33 133 .67

(Intermediate) N
a,c

25.40 146 14.85

3.03 134 .90

a,c

3.43 149 .74

a,c

2.89 145 .79

a,b

12.66 105 11.30

a,b

2.31 99 .83 .14

3.02 107 1.00

a,b

1.66 106 .54

5.56

7.27

6.28

20.74

30.90

8.61

104.95

InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctestsat p .05 p.001 p.01 GroupmeanissignificantlydifferentthanGroup1 GroupmeanissignificantlydifferentthanGroup2 GroupmeanissignificantlydifferentthanGroup3

Table6.16reportstestsofsignificantdifferences fortwo demographic variables:(1) annual sales to the automotive components manufacturer and (2) length of the supply relationship with the automotive components manufacturer (measured in years). The logarithm (baseten)functionwasusedtotransformbothdemographicvariablesintoanormal distribution.AsindicatedbythesignificantFratio,bothsalestothemanufacturer(Fratio= 6.13,p<.01)and yearsofsupply(Fratio=4.25,p<.05)aresignificantlydifferentacross
253

relationshipclusters.Resultsfrommultiplecomparisontestsindicatethatsalesfortheclose andintermediatesupplierrelationshipclustersaresignificantlylessthansalesforthedistant supplierrelationshipclusterhowever,thereisnosignificantdifferenceinannualsalestothe manufacturer between the close and intermediate supplier relationship clusters. Also, as reported in Table 6.16, the suppliers within the distant cluster have longerterm supply relationshipswiththebuyingfirmascomparedtosuppliersinthecloserelationshipcluster.

Table6.16:Demographicsforthreeclustersolution1,2
Cluster 1 (Intermediate) 2 (Close) 3 (Distant) Mean N Std.Dev. Mean N Std.Dev. Mean N Std.Dev. Levenes Statistic FRatio Brown Forsythe Statistic
1 2

LogofAnnualSalesto <<MFGR>>
c

LogofYearsSupplying <<MFGR>> 1.034 119 .361

c

6.494 119 .767

6.555 127 .731

.988 132 .391

a,b

6.834 92 .694 .430

1.134 90 .344

1.467

6.130

4.247

a b c

InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctestsatp .05 p.01 p.05 GroupmeanissignificantlydifferentthanGroup1 GroupmeanissignificantlydifferentthanGroup2 GroupmeanissignificantlydifferentthanGroup3

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Results from the preceding analysis lend strong support to hypothesis seven, which posits that a buying firm simultaneously manages sets (clusters) of supplier relationships characterized by varying levels of buyersupplier relationship closeness. Using a sevenstep cluster analysis procedure, six dimensions of relationship closeness were used to classify supply relationships into three homogeneous clusters that exhibit acceptable reliability, externalvalidity,andcriterionrelatedvalidity.Assuch,hypothesissevenissupported. 6.4 AnalysisofSupplyManagementPracticesAcrossSupplierRelationship Clusters Hypotheses eight through eleven assert that a buying firms use of specific supply managementpracticesvariesacrossrelationshipclusterscharacterized by variousdegreesof closeness. In 6.3, findings suggest that a buying firms portfolio of supplier relationships consistsofthreemainclustersbasedontheintensityoftherelationalnormsthatcharacterize each buyersupplier relationship. Building on these findings, hypotheses eight, nine, and elevenpositthattherelativeimportanceofhigherlevelsectioncriteria,comprehensivenessof supplier evaluation, and buying firms use of direct involvement activity are greater within relationship clusters characterized by higher levels of closeness, respectively. Conversely, hypothesis ten asserts that a buying firms use of competitive pressure is greater within relationship clusters characterized by lower levels of closeness. The formal hypotheses are listedbelow:

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H8:

Therelativeimportanceofhigherlevelsupplierselectioncriteria,measuredinterms of service and support, technological innovation, and project management capabilities, increases within relationship clusters characterized by higher levels of closeness.

H9:

The comprehensiveness of buyers evaluation systems increases within relationship clusterscharacterizedbyhigherlevelsofcloseness.

H10: Buyers use of competitive pressure decreases within relationship clusters characterizedbyhigherlevelsofcloseness.

H11: Buyers provisions of supplier assistance increases within relationship clusters characterizedbyhigherlevelsofcloseness.

Prior to assessing hypotheses eight through eleven, the validity of the comprehensiveness of supplier evaluation, competitive pressure, and direct involvement constructs was assessed using exploratory factor analyses. As presented in 5.6, the unidimensionality(5.6.1),reliability(5.6.2),convergentvalidity(5.6.3),anddiscriminant validity (5.6.3) were established for the aforementioned supply management constructs. Results fromthisanalysisshowsubstantive factor loadings(seeTable5.52,5.53and5.54), acceptable scale reliability (see Tables 5.55, 5.56, and 5.57), a single substantive itemto factor crossloading in the full exploratory factor model (see Table 5.58), and acceptable discriminantvalidityattheconstructlevel(seeTable5.59).Theseresultsconfirmthevalidity

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of the comprehensiveness of supplier evaluation, competitive pressure, and direct involvementconstructs. Tests of hypotheses eight through eleven were accomplished using Dunnetts C approachtopairwise multiplecomparisons.Table6.15reportstheresultsoftestsof mean differencesoftheaforementionedsupplymanagementpracticesforthethreeclustersolution. Hypothesiseightassertsthattherelativeimportanceofhigherlevelsupplierselectioncriteria isgreaterwithinclusterscharacterizedbyhigherrelationshipcloseness. AsshowninTable 6.15,therelativeimportanceofhigherlevelsectioncriteriadifferssignificantlyacrosssupply relationshipclusters(BrownForsytheFratio=30.90,p<.001).Theresultsofthepairwise tests of mean differences indicate that the means ofthe relative importance of higherlevel supplier selectioncriteria forclusterstwo (close),one(intermediate),andthree(distant)are 25.40,18.04,and12.66,respectively.Consistentwiththeassertionof hypothesiseight,the relative importance of higherlevel selection criteria for the close cluster is significantly greater than those of the intermediate and distant clusters. Additionally, the relative importance of higherlevel selection criteria for the intermediate cluster is significantly greaterthanthatofthedistantcluster.Theseresultssuggeststrongsupportforhypothesis eight. Hypothesis nine posits that the comprehensiveness of supplier evaluation is greater withinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.AsreportedinTable 6.15, the comprehensive of supplier evaluation is significantly different across clusters (F ratio=20.74,p<.001).Theresultsofthepairwisetestsof meandifferences indicatethat the comprehensiveness of supplier evaluation is the same for close (mean = 3.03) and intermediate (mean = 2.85) supplier relationship clusters. However, supplier evaluation

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comprehensivenessishigherforboththecloseandintermediatesupplierrelationshipclusters ascomparedtothedistant(mean=2.31)supplierrelationshipcluster.Theseresultssupport hypothesisnine. Hypothesistenassertsthatabuyingfirmsuseofcompetitivepressureislessintense withinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.AsreportedinTable 6.15,competitivepressureissignificantlydifferentacrossclusters(BrownForsytheFratio= 8.61,p<.001).Theresultsofthepairwisetestsofmeandifferencesindicatethattheuseof competitivepressureissignificantlygreaterfortheclose(mean=3.43)relationshipclusteras comparedtothe intermediate(mean=3.08)and distant(mean=3.02)supplierrelationship clusters. However, there is no difference in the use of competitive pressure across intermediate and distant supplier relationship clusters. These results suggest that a buying firms use of competitive pressure is greater within relationship clusters characterized by higherlevelsofcloseness. Theseresultsarecontrarytohypothesistenassuch,hypothesis ten isnotsupported. Hypothesis eleven posits that a buying firms use of direct involvement is greater withinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.AsreportedinTable 6.15,directinvolvementissignificantlydifferentacrosssupplierrelationshipclusters(Brown Forsythe Fratio =104.95,p<.001).Theresultsofthepairwisetestsof meandifferences indicatethattheuseofdirectinvolvementissignificantlygreaterfortheclose(mean=2.89) relationshipclusterascomparedtotheintermediate(mean=2.33)anddistant(mean=1.66) supplier relationship clusters. Additionally, the use of direct involvement is significantly greater for the intermediate relationship cluster relative to the distant supplier relationship cluster.Theseresultssuggestthatabuyingfirmsuseofdirectinvolvementisgreaterwithin

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relationship clusters characterized by higher levels of closeness. These results support hypothesiseleven. 6.5 AnalysisofOperationalBenefitsAcrossSupplierRelationshipClusters

Hypotheses twelve through sixteen assert that the intensity of several operational benefits varies across relationship clusters characterized by various degrees of closeness. In 6.3, findingssuggestthatabuyingfirmsportfolioofsupplierrelationshipsconsistsofthreemain clusters based on the intensity of the relational norms that characterize each buyersupplier relationship. Building on these findings, hypotheses twelve through sixteen assert that the magnitudes of barriers to product technology sharing, early supplier involvement in the buyingfirmsnewproductdevelopment,opportunitiesforcostimprovement,effectivenessof interfirmqualitymanagementpractices,andsuppliersuseofintegrativesupplymanagement practicesdifferacrossrelationshipclusterscharacterizedbyvaryinglevelsofcloseness.The formalhypothesesarelistedbelow:

H12: The magnitude of barriers to product technology sharing decreases within relationshipclusterscharacterizedbyhigherlevelsofcloseness.

H13: Earlysupplierinvolvementinnewproductdevelopmentincreaseswithinrelationship clusterscharacterizedbyhigherlevelsofcloseness.

H14: Opportunities for cost improvements increase within relationship clusters characterizedbyhigherlevelsofcloseness.

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H15: The effectiveness of interfirm quality management practices increases within relationshipclusterscharacterizedbyhigherlevelsofcloseness.

H16: Suppliersuseofintegrativesupplymanagementpracticeswithitsupstreamsuppliers increaseswithinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.

Prior to assessing hypotheses twelve through sixteen, the validity of the barriers to technology sharing, cost improvement opportunities, and effectiveness of interfirm quality managementconstructswasassessedusingexploratoryfactoranalyses. Aspresentedin5.7, the unidimensionality (5.7.1), reliability (5.7.2), convergent validity (5.7.3), and discriminant validity (5.7.3) were established for the aforementioned operational benefits constructs.Resultsfromthisanalysisshowsubstantivefactorloadings(seeTable5.60,5.61, 5.62 and 5.63), acceptable scale reliability (see Tables 5.64, 5.65, 5.66, and 5.67), one substantiveitemtofactorcrossloadinginthefullexploratoryfactormodel(seeTable5.68), and acceptable discriminant validity at the construct level (see Table 5.69). These results generally confirm the validity of the barriers to technology sharing, cost improvement opportunities,andinterfirmqualitymanagementconstructs. Tests of hypotheses twelve through sixteen were accomplished using Dunnetts C approachtopairwise multiplecomparisons.Table6.17reportstheresultsoftestsof mean differences of the aforementioned operational benefits for the threecluster solution. Hypothesis twelve asserts that barriers to technology sharing decrease within clusters characterizedbyhigherrelationshipcloseness.Barrierstotechnologysharingwereassessed usingtwofactors:(1)lackofinterestand(2)fearofinformationmisappropriation.Asshown

260

in Table 6.17, lack of interest (Fratio = 8.09, p < .001) and fear of information misappropriation (Fratio = 15.31, p < .001) significantly differ across supply relationship clusters.Theresultsofthepairwisetestsof meandifferences indicatethatbothbarriersto technology sharing differ across supplier relationship clusters in a similar manner. For the distantrelationshipcluster(lackofinterestmean=3.25fearofinformationmisappropriation mean = 3.78), barriers to technology sharing are significantly greater than both the intermediate(lackofinterestmean=2.88fearofinformationmisappropriationmean=3.08) and close (lack of interest mean = 2.81 fear of information misappropriation mean = 3.01) supplier relationship clusters. However, barriers totechnology sharing were not greater for the intermediate cluster relative to the close cluster. Consistent with the assertion of hypothesis twelve, barriers to technology sharing are greater for the distant supplier relationship cluster and are somewhat mitigated across the intermediate and close supplier relationshipclusters.Theseresultssupporthypothesistwelve. Hypothesis thirteen posits that early supplier involvement is greater within relationshipclusterscharacterized by higher levelsofcloseness. AsreportedinTable6.17, theextentofearlysupplierinvolvementsignificantlydiffersacrossclusters(Fratio=36.19,p < .001). The results of the pairwise tests of mean differences indicate that early supplier involvementissignificantlygreaterfortheclose(mean=2.86)supplierrelationshipclusteras compared to both the intermediate (mean = 2.52) and distant (mean = 1.95) supplier relationship clusters. Additionally, the extent of supplier involvement for the intermediate cluster is significantly greater than that of the distant supplier relationship cluster. These resultssupporthypothesisthirteen.

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Hypothesis fourteen posits that cost improvement opportunities are greater within relationshipclusterscharacterized by higher levelsof closeness. AsreportedinTable6.17, the availability of cost improvement opportunities does not differ across clusters (Fratio = 2.24,p= .107. Thisresultprovidesnosupportfor hypothesisfourteen. Hypothesis fifteen posits that the effectiveness of interfirm quality management is greaterwithinrelationshipclusterscharacterizedbyhigherlevelsofcloseness.Asreportedin Table6.17,interfirmqualitymanagementsignificantlydiffersacrossclusters(Fratio=3.54, p<.05). Theresultsofthepairwisetestsofmeandifferencesindicatethattheeffectiveness ofinterfirmqualitymanagement,whichisreversecoded,issignificantlylessforthedistant supplier relationship cluster (mean = 2.64) as compared to the intermediate supplier relationshipcluster(mean=2.29).However,thereisnodifferenceineffectivenessofinter firm quality management practices when contrasting the intermediate and close supplier relationship clusters or the close and distant supplier relationship clusters. These results providelimitedsupporthypothesisfifteen. Hypothesis sixteen posits that a suppliers use of integrative supply management practicesisgreaterwithin relationshipclusterscharacterizedbyhigherlevelsofcloseness. As reported in Table 6.17, upstream supplier collaboration does not differ across clusters (BrownForsythe Fratio = 2.74, p = .056). sixteen. Thus, the results do not support hypothesis

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Table6.17: Testsofmeandifferencesof operationalbenefitsforthreeclustersolution1,2

Cluster Technology Technology EarlySupplier Cost Interfirm Upstream Sharing Sharing Involvement Improvement Quality Supplier 3 Barriers BarriersFear Opportunities Management Collaboration Lackof of Info Interest Misapprop Mean Std.Dev. 2 (Close) 3 (Distant) Mean N Std.Dev. Mean N Std.Dev. Levenes Statistic FRatio
a,b c c

2.88 128 .86 2.81 144 .87 3.25 104 .94 .55 8.09

3.08 127 1.18

b,c

2.52 135 .790

2.97 133 .76 3.18 151 .87 3.10 105 .95 2.68 2.24

2.29 130 1.07

3.86 130 .946

f

(Intermediate) N

3.01 144 1.14

a,c

2.86 151 .872

2.35 150 1.05

4.04 146 .778

a,b

3.78 105 1.14 .46

a,b

1.95 107 .873 .90

a,e

2.64 107 1.15 .495

3.76 105 1.11

11.61

15.31

36.19

3.54

1 2 3 a b c d e f

Brown Forsythe FRatio InitialanalysisofvarianceassessedusingSPSSv11.5.0onewayANOVA MeandifferencesassessedusingSPSSv11.5.0DunnettsC(1980)posthoctests Measuresofinterfirmqualitymanagementeffectivenessarereversecoded p .001 p .01 p .05 p.10 GroupmeanissignificantlydifferentthanGroup1 atp .05 GroupmeanissignificantlydifferentthanGroup2 atp .05 GroupmeanissignificantlydifferentthanGroup3 atp .05 GroupmeanissignificantlydifferentthanGroup1atp .10 GroupmeanissignificantlydifferentthanGroup2atp .10 GroupmeanissignificantlydifferentthanGroup3atp .10

2.74

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CHAPTER7 DISCUSSIONOFRESULTS
Thegoalofthisdissertationresearchistoadvancesupplierportfoliomanagementtheoryby empirically investigating (1) how integrative and distributive supply management practices differentially affect suppliers perceptions of relationship closeness, (2) the extent to which buying firms manage clusters or sets of supply relationships within their direct materials supply base, (3) how suppliers perceptions of relationship closeness vary across sets of relationships within a single buyers supply base, and (4) how suppliers perceptions of relationship closeness influence the operational benefits derived from a buyersupplier relationship.Toanswertheseresearchquestions,acomprehensivesecondorderfactormodel ofrelationshipclosenesswasdeveloped,theinterrelationshipsbetweenstrategicimportance ofthe buyersupplierrelationship, integrative anddistributivesupply managementpractices, and relationship closeness were assessed, and the distribution and nature of buyersupplier relationshipswithinasinglebuyingfirmssupplierportfoliowereexamined. This chapter seeks to position findings from this study within the current supplier portfolio management and buyersupplier relationship management streams of literature. Additionally, this chapter seeks to highlight notable findings and offer explanations for unanticipatedresults.Assuch,7.1providesadiscussionofthefindingsassociatedwiththe secondorderfactormodelofbuyersupplierrelationshipcloseness.In7.2,theresultsofthe investigation of the causal model of buyersupplier relationship closeness are assessed and modelrespecificationisexplored.Thischapterconcludeswith7.3inthissection,insights into the distribution and nature of close supplier relationships within the focal automotive componentsmanufacturerssupplierportfolioaredrawn.

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7.1

BuyerSupplierRelationshipClosenessSecondOrderFactorModel

Thefundamental positionofthisresearchisthatbuyingfirmsmanagesupplierportfoliosthat consistofsetsofsupplierrelationshipsthatvaryintermsofrelationshipcloseness. Assuch, the conceptualization, operationalization, and measurement of relationship closeness are central to the development of the theory advanced within this research. Accordingly, this research draws from previous literature to develop a theoretical model of relationship closeness that is based on six dimensions: (1) trust, (2) commitment, (3) solidarity, (4) informationsharing,(5)sharedbenefit,and(6)flexibility.Whileseveralextantstudieshave considered several of these dimensions within previous operationalizations of secondorder models of buyersupplier relationship (Benton and Maloni, 2005 Prahinski and Benton, 2004), relationship strength (Maloni and Benton, 2000), relational norms (Heide and John, 1992), and relationalism (Noordewier et al., 1990), a comprehensive literature review suggeststhatthisstudyisthefirsttoconsiderthisspecificsetof relational dimensionsasfirst orderfactorswithinasecondordermodelofbuyersupplierrelationshipcloseness. Several insightsweregainedduringtheprocessof validatingthesecondorderfactor modelofrelationshipcloseness. Resultsfromconfirmatoryfactoranalysissupportasecond order factor model of relationship closeness that consists of four firstorder factors: trust, solidarity, information sharing, and shared benefit. As noted within the statistical analysis section,flexibilitywasindicatedwithonlyasinglemeasurementitemandwassubsequently droppedfromthesecondorderfactormodel. Additionally,theexcessivecorrelationbetween trust and commitment precluded the inclusion of the commitment dimension in the second orderfactormodel.

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Mostnoteworthy istherelationship betweentrustandcommitment.As indicated in theinitialassessmentofthefullmeasurementmodelofrelationshipcloseness,thecorrelation betweentrustandcommitmentisnearlyone.Areviewoftheoperationalizationofthetrust and commitment constructs suggests that the questionnaire items that measure trust and commitmentareconceptuallydistinct.Consistentwithpast literature(Dyerand Chu,2003 ZaheerandVenkatraman,1995),trustismeasuredintermsof(1)trustofexchangepartner, (2) fairness in dealings, (3) valued treatment. Alternately, measures of commitment are conceptuallyrelatedtothoseemployedbyMohrandSpekman(1994,p.151)andinclude(1) recognitionof support,(2)honoringcontractualcommitments,and(3) livingtothespiritof commitment. The modification indices listed in Table 5.27 lend empirical support for the conceptual distinction of the measurement items associated with the trust and commitment constructs. As noted within this table, the highest modification index associated with a potentialcrossloadingbetweenameasureandanunintendedconstructis0.144,whichisfar below the 7.88 recommended cutoff. As such, the discriminant validity of trust and commitment is supported at the item level however, this support is confounded at the constructlevelduetothehighcorrelationbetweenthesefactors. The high correlation betweentrust and commitment constructs may be explained by the theoretical relationship between these constructs. A common theme within the buyer supplier relationship literature (Anderson and Weitz, 1992 Bensaou and Anderson, 1999 Dwyeretal.,1987Gulati,1995Heide,1994RingandVanDeVen,1992,1994)istherole of repeated interactions over time and the reciprocal nature of trust and commitment. Anderson and Weitz (1992) find that one partys demonstrated commitment to a buyer supplier relationship motivates reciprocating behavior on behalf of the exchange partner.

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More directly, Morgan and Hunt (1994) assert that trust serves as an antecedent to commitment.Intheirstudy,MorganandHunt(1994)testtheefficacyofthekeymediating variable model (p. 22), in which a causal relationship between trust and commitment mediates causal relationships between a set of antecedent variables and a set of criterion variablesintheirstudy,MorganandHunt(1994)contrastthekeymediatingvariablemodel with an alternate model in which trust and commitment do not serve as mediators. Importantly,MorganandHunt(1994)findthatthemediationmodeloutperformsthealternate modelandconcludethatistrustavalidantecedentcommitment.Theresultsoftheinitialfull measurement model, which show a strong, positive correlation between trust and commitment,mayservetoreaffirm thefindingsofMorganandHunt(1994). Thesecondimportantconclusiondrawnfromthevalidationofsecondordermodelof relationship closeness is the finding that shared benefit may be viewed as a significant dimensionofrelationshipcloseness. Whilepreviousstudieshavehighlightedtheimportance of shared benefit within a buyersupplier relationship (Bensaou and Venkatraman, 1995 Stuart,1993),previoussecondordermodelsofbuyersupplierrelationshipshavenotincluded sharedbenefitasa firstorderfactor.Results fromthisstudy suggestthatshared benefit, in addition to trust, solidarity, and information sharing, represents an important dimension withinthesecondorderfactormodelof relationshipcloseness.Asnotedintheanalysisofthe secondorder factor model, the standardized path coefficient for the shared benefit factor is positive, significant, and slightly larger than that of information sharing, which has been traditionallyconsideredasanessentialdimensionofbuyersupplierrelationships(Heideand John,1992Noordewieretal.,1990).

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7.2

CausalModelofBuyerSupplierRelationshipCloseness

The causal model of relationship closeness posits that integrative and distributive supply management activities have opposing effects on buyersupplier relationship closeness. Previous literature suggests that integrative activities, in which buying firms use direct involvement activities to improve supply chain performance, are associated with the development of closer buyersupplier relationships (Dyer and Chu, 2000, 2003 Krause, 1999).Conversely,thisresearcharguedthatdistributiveactivities,whichrelyontheuseof competitivepressuretoachieveshorttermgain,arenegativelyassociatedwithbuyersupplier relationshipcloseness.Whileanalysisofthepositiverelationshipbetweenintegrativeactivity andrelationshipclosenessconfirms findings frompreviousstudies,therelationship between distributiveactivityandrelationshipclosenesswasnotstatisticallysignificant.Additionally, the path coefficient associated with this relationship was positive this finding suggests a contrarian view, which holds that distributive supply management activities may lead to closer buyersupplier relationships. Subsequent analysis of buyersupplier relationship clusters reveals that the buying firms use of competitive pressure is significantly greater within the close supplier relationship cluster than within the intermediate and distant supplier relationship clusters. This research offers two possible explanations for this unanticipated finding. First, it may be that closer buyersupplier relationships can simply withstandgreaterpressures.Whereasdistantrelationshipsmaysimplydissolveinthefaceof intensepressure,jointinvestmentandotherrelationshipspecificinvestmentsmayserveasa substantive barrier to the dissolution of the buyersupplier relationship (Bensaou and Anderson,1999).Inthiscase,closerelationships,or moreaccuratelytherelationshipspecific investments that may have preceded the development of close relationships, may serve as

268

relationship exit barriers. Past research has conceptualized relationship exit barriers as relationshipterminationcosts(Morgan andHunt,1994) orrelationshipswitchingcosts (Heide andJohn,1988).HeideandJohn(1988)notethedifficultyofswitchingrelationshipspecific investments to an alternate relationship and assert that high switching costs lead to dependence.MorganandHunt(1994,p.24)notethatexpectedterminationcostsleadtoan ongoingrelationshipasbeingimportant. Assuch,closerelationshipsmayhavethecapacity tobearhigherlevelsofcompetitivepressure. A second explanation involves the potential relationship that may exist between integrative and distributive activities. From a buying firms perspective, the provision of direct assistance may justify heightened performance expectations, as in a quid pro quo relationship.Assuch,asupplierfirmwhoacceptsassistancefromabuyingfirmmayalsobe subjectedtogreaterpressurestoimproveperformancesuchthatthebuyingfirmsinvestment inthesupplieriswarranted. Insuchcase,greaterinvestmentinthesupplyingfirm(through directinvolvementsupplierdevelopmentactivity)requiresgreaterreturnsfromthesupplierin order to guarantee sufficient return on investment. As such, a buying firm may employ competitive pressure to ensure adequate returns on their direct involvement activity. Thus, through the concomitant use of integrative and distributive supply management activities, a buyingfirmmayseektogrowthetotal potentialbenefitsavailablewithintherelationshipand subsequentlyleveragemarketpressuretoensurethatpotentialbenefitsmaterialize. Thetwoprecedingexplanationssuggestapositiverelationshipbetweenabuyersuse of integrative supply management practices and a buyers use of distributive supply management practices. To test this proposition, the causal model of buyersupplier relationship closeness was respecified to include a path from integrative activity to

269

distributive activity. Using the full response dataset (n = 425), maximum likelihood estimation, and estimation of means and intercepts to compensate for missing data (Byrne,
2 2001),parametersfortherespecifiedmodel,asdepictedinFigure7.1,wereestimated .As

indicatedinTables7.1and7.4,modelfitisgenerallyacceptable(NFI=0.884,CFI=0.917, andRMSEA=0.070)andallfactortoitemloadingsaresignificant(p<.001),respectively. Table7.2reportsthestandardizedpathcoefficientsforthestructuralmodel.Consistentwith the aforementioned explanations, a buying firms use of integrative activity is positively relatedtoitsuseof distributiveactivity(=0.331,p<.001).Further,theadditionof acausal path from integrative activity to distributive activity results in a substantive increase in the explainedvarianceofthedistributiveactivityconstruct.AsnotedinTables6.3and7.3,the explained variance of the distributive activity latent variable increased from 6.2% to 17.0% (respectively) as a result of model respecification. Most notably, the addition of the path fromintegrativeactivitytodistributiveactivityrendersthepathbetweenstrategicrelationship importanceanddistributiveactivitystatisticallyequivalenttozero(seeTable7.2).Assuch, the results from the respecified model suggest that the relationship between the strategic importanceoftherelationshipanddistributiveactivityisfullymediatedbyintegrativeactivity (Baron and Kenny, 1986). Thus, the initial finding of a positive relationship between the strategic importance of the buyersupplier relationship and distributive activity, which was contrary to hypothesized expectation, is actually attributable to the mediated relationship between integrative activity and distributive activity. These results serve to clarify initial

AppendixCpresentsresultsforarevisedmodelinwhichthebqcc2.51manifestvariable,whichmayposea threatthevalidity ofthedistributiveactivityconstructduetosubstantivecrossloadingswiththeintegrative activity and relationship closeness constructs (see Table 5.48), is omitted. Thus, for the revised model, distributiveactivityismeasuredwiththreeobservablevariables:bqcc2.21,bqcc2.31,andbqcc2.41(seeFigure C.1).AsnotedinAppendixC,estimatesfortherevisedmodelareconsistentwiththosepresentedinTables 7.1through7.4.

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findingsand lend strongempiricalsupport forthepropositionthatrelational barrierstoexit allowbuyingfirmstoplacegreaterpressureontheirpossiblymoredependentsuppliers.

Table7.1:Respecifiedrelationshipclosenesscausalmodel modelfitstatistics
FitIndex (df) /df NFI RFI TLI CFI RMSEA
2 2

Value 345.46 (112) 3.08 .884 .841 .887 .917 .070

Table7.2:Respecifiedrelationshipclosenesscausalmodel structural pathcoefficients

Path Relationshipimportance to Integrativeactivity Distributiveactivity Integrativeactivity to Relationshipcloseness Distributiveactivity
a b

PathCoefficient

tvalue

.494 .023 .849 .331

8.114a .300b 7.162a 4.57a

p<.001 p=.764

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Table7.3:Respecifiedrelationshipclosenesscausalmodel explainedvariance
EndogenousFactor Integrativeactivity Distributiveactivity Relationship Closeness
2 R

.244 .170 .722

Table7.4:Respecifiedrelationshipclosenesscausalmodel indicator pathcoefficients

Identifier Item Standardized Loading .395 .661 .795 .675 .657 .699 .638 .830 .722 .721 .707 tvalue

DistributiveActivityto bqcc2.21 Yourfirmfeelspressuretoreducetotalcost bqcc2.31 bqcc2.41 Yourfirmfeelspressuretoimprovequality Yourfirmfeelspressuretoimprovedelivery

Constrained 6.62a 6.81a 6.64a Constrained 18.89a 13.24a 13.91a 12.53a 12.49a 12.38a

bqcc2.51 Yourfirmfeelspressuretoupgradetechnology IntegrativeActivityto bqcc3.11 bqcc3.21 bqcc3.31 bcpp15.1 bcpp15.2 <<MFGR>>helpsreducecosts <<MFGR>>helpseliminatewaste <<MFGR>>helpsimprovequality <<MFGR>>workswithyourfirmonsupplychain designimprovement

<<MFGR>>workswithyourfirmonlean manufacturing bcpp15.3 <<MFGR>>workswithyourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain RelationshipClosenessto m_infosh Meanofomc4.11,omc4.21,omc4.31 m_trust m_solida bcpp4.1
a

.409 .747 .651 .514 .652

Constrained 7.68a 7.34a 6.67a 7.29a

Meanofbocwr1.1,bocwr4.1,bocwr9.1 Meanofbfr3.1,bfr4.1,bfr5.1 <<MFGR>>givesflexibilitytomeetcostobjectives

m_shbene Meanofbfr1.11,bfr1.21
p<.001

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Figure7.1:Respecifiedcausalmodelofrelationshipcloseness

bqcc2.21

e12 e13 e14 e15

Distributive Practices
d2

bqcc2.31 bqcc2.41 bqcc2.51

m_infosh m_trust

e21 e22 e23 e24 e25

Relationship Importance

Relationship Closeness

m_solida m_shbene bcpp4.1

d3

bqcc3.11 bqcc3.11 bqcc3.21

e1 e2 e3 e4 e5 e6 e7

Integrative Practices

bcpp15.1 bcpp15.2 bcpp15.3

d1 bcpp6.1

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A second set of relationships within the causal model of relationship closeness concern the associations amongst the strategic importance of the relationship, integrative supplymanagementpractices,anddistributivesupplymanagementpractices.Consistentwith expectations, this research found that the strategic importance of the buyersupplier relationship is positively associated with integrative supply management practices. Kraljic (1983) suggests that strategic relationships, which tend to be longerterm and involve the exchangeofhighvaluegoods,warrantgreaterinvestmentfromthebuyingfirm. Theinitial andrespecifiedmodelsofrelationshipclosenesssupport thisview. However, contrary to Kraljics (1983) assertions, this study finds that the strategic importance of the buyersupplier relationship is also positively associated with the use of distributivesupplymanagementpractices. Morespecifically,theresultsfromtherespecified modelshowthatstrategicimportanceoftherelationshippositivelyaffectsabuyingfirmsuse of integrative activity, which in turn positively affects the buying firms use of distributive supplymanagementactivity.Thus,therespecifiedmodelprovidesstrongempiricalsupport forapositive,indirectrelationshipbetweenstrategicrelationshipimportanceanddistributive supply management activity. Whereas Kraljic (1983) argues that a buying firms use of distributive supply management tactics should be reserved for nonstrategic purchases, this studyfindsevidencetothecontrary. These findings raise interesting questions concerning the joint use of integrative and distributivesupplymanagementpracticeswithinasupplymanagementstrategy.Initially,this research suggested that integrative and distributive supply management practices may be viewedasopposingforcesthatmaybemanipulatedtoachievedesiredlevelsofrelationship closeness. However,findings fromthe initialandrespecifiedcausalmodelsofrelationship

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closeness indicatethat integrative activities are the primary driver of relationship closeness greater use of integrative supply management practices leads to closer buyersupplier relationships. Conversely, the lack of integrative supply management activities, rather than the intense use of distributive activities, leads to more distant buyersupplier relationships. Thisresult suggeststhatasupplier may accepthelpandassistance froma buying firm with thefullunderstandingthatthebuying firmwillraise itsperformanceexpectationsandplace greaterdemandsuponthesupplierfirm. Restated,itappearsthatbothpartiestotheexchange implicitly recognize that greater investment in the relationship must result in performance improvementswithintherelationship. Interestingly, and contrary to hypothesized expectations, findings from the initial causal model indicatedthatthestrategic importanceofa buyersupplierrelationshipandthe buying firms use of distributive supply management practices are positively related. However, findings from the respecified model suggest that, in fact, there is no significant directrelationshipbetweenthestrategicimportanceofthebuyersupplierrelationshipandthe buyers use of distributive supply management practices, but that this relationship is fully mediatedbyintegrativesupplymanagementpractices. Finally, basedontheoreticaldevelopmentsdrawn fromrelationalgovernancetheory, thisresearch has suggestedacausalpathfrom integrativeactivitiestodistributiveactivities. Thedirectionalityofthisrelationshipisoppositethatproposedwithinpreviousresearch. Ina study of the effects of supplier development activity on firm performance, Krause et al. (2000) hypothesize that buyers use of competitive pressure, which is operationalized in a similar manner as distributive activity, leads to buyers use of direct involvement supplier developmentactivity. Intheirstudy,Krauseetal.(2000)donotfindempiricalsupportfora

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positive relationship between competitive pressure and direct involvement. Drawing from relational governance theory, this research posits and finds strong empirical support for a causal relationship between integrative and distributive activity and challenges the position adoptedby Krauseetal.(2000). 7.3 CharacterizingtheSupplierRelationshipPortfolio

Wagner and Johnson (2004, p. 717) assert that relationship portfolio management involves themanagementofanarrayofsupplierrelationships,eachhavingvariouscharacteristicsand eachservingthe[buying] firm indifferentways. Fromatheoreticalperspective,supplier portfolio management theory explicitly recognizes that buying firms consist of limited internal resources and espouses the allocation of these limited resources across relatively homogeneoussubsetsofsuppliers inordertomaximizegains(orminimizerisks)acrossthe entiresupplybase. Assuch,acentralthrustofportfoliomanagementisthedeterminationof the role of each relationship and the pursuit of appropriate mechanisms to govern each relationship. Thus,relationshipportfoliomanagementexplicitlyinvolvestwocriticalsupply managementfunctions:(1)supplybasesegmentationand(2)differentialmanagementofeach relationshipsegment(orcluster) (NelloreandSoderquist,2000). While the causal model of relationship closeness focused on the developmentofthe conceptualandempiricallinkagesbetweenrelationshipimportance,theuseofintegrativeand distributive supply management practices, and buyersupplier relationship closeness, the exploratoryanalysisofasingle firmssupplierrelationshipportfolio focusesspecificallyon the differential management of homogeneous sets (clusters) of supply relationships and the operationalbenefitsderivedfromeachsetofrelationships. Intheconclusionoftheirstudyof closebuyersupplierrelationships,Goffinetal.(2006,p.206)notethatempiricalevidenceis

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needed on the number of transactional (distant), average relationships, relationships in development and partnershiplike relationships which are typically found in manufacturersportfolios. Accordingly,thehypothesesdiscussedwithinthissectionseekto describe the nature and distribution of supplier relationships that compose an automotive componentsmanufacturerssupplyportfolio. Thefindingsfromthisexploratoryinvestigation arediscussedbelow. Importantly, this research finds that the focal automotive components manufacturer managesthreesetsofsupplierrelationshipsthataresignificantlydifferentfromoneanother. Results from a validatedapproachtoclusteranalysis indicatethatsupplierrelationshipscan be classified in terms of six dimensions of relationship closeness: trust, commitment, solidarity, flexibility, information sharing, and shared benefit. The results from cluster analyses have two major implications. First, these results serve to augment conceptual modelsofbuyersupplierrelationshipsthatgenerallydescribeselectpointsalongacontinuum from transactional relationships to full partnerstyle relationships (Lambert et al., 1996 Webster,1992). Whilepreviousresearchhasstudiedrelationalconfigurationsacrosssamples of many buying firms (Bensaou, 1999 Bensaou and Venkatraman, 1995 Cannon and Perreault, 1999), the nature and distribution of a single buying firms portfolio of supplier relationshipsremainedunclear.Thisstudyhasdevelopedinitialinsightsastohowsetsofa singlebuyingfirmssupplierrelationshipsmaybepositionedalongarelationshipcontinuum. Second, the development of a threecluster solution is consistent with an ABC approach to supplier segmentation that is based on the Pareto principal. In this approach, factors such as annual purchase dollar volume, product technology, product quality, and/or logistical support may be used to prioritize the importance of suppliers into A, B, and C

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categories(WagnerandJohnson,2004).Inacasestudyoftwelvemultinationalcompanies, Wagner and Johnson (2004) find that the majority of buying firms attempt to establish partnerships with Alevel suppliers (i.e.,the most important suppliers) in orderto minimize the cost of purchased materials and dampen risks associated with strong dependencies on important suppliers. Conversely, buying firms sought armslength relationships with suppliersofsimple,highlystandardizeditemsWagnerandJohnson(2004,p.723)foundthat selection of these Clevel suppliers involved brief assessment of suppliers on a few key criteria, and then selection of the lowest price supplier. The finding of a threecluster solution, in which supplier relationship clusters may be best classified as close relationships, intermediate relationships, and distant relationships lends empirical supportfortheABCapproachtosuppliersegmentation. Alternately, this finding may suggest the revision of the Kraljic (1983) Purchasing Sophistication Matrix. Followup interviews with purchasing executives within the

automotive industry suggest the need to develop a simplified approach to supplier segmentation. In one interview, a purchasing manager modified Kraljics (1983) matrix by drawing two parallel lines from the topleft to the bottom right of the matrix, effectively partitioning the matrix into thirds. Consistent with Kraljics conceptualization, the top triangle and bottom triangle represent strategic and nonstrategic relationships, respectively. However, the region between the parallel lines, which largely correspond to Kraljics leverageand bottleneckquadrants, mayrepresentastuckinthemiddlesupplystrategy. Drawing from the Gelderman and Van Weele (2003) model of purchase portfolio managementstrategiesanddynamics,thedominantstrategyforthestuckinthemiddlegroup may be to shift the supply management strategy of each supply relationship such that

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relationships within this category can be reclassified as strategic or nonstrategic. Accordingly, the threecluster solution may suggest a simplified view of supplier segmentation that espouses three types of supplier relationships: (1) strategic (high importanceandhighriskrelationships),(2)nonstrategic(lowimportanceandlowrisk),and (3) mixed (high importance and low risk or low importance and high risk). As such, the validationofathreeclustersolutionwithinthisresearchmaychallengeextantsegmentation strategies. Themeansoftherelationshipclosenessvariablesforeachsupplierrelationshipcluster lend initial insight intothe distribution ofclose supplier relationships within an automotive components manufacturers supplier relationship portfolio. As noted in 5.3.1, all item measuresforeachdimensionofrelationshipclosenessweremeasuredusingananchoredfive pointscaleinwhicharesponsevalueofthreerepresentstosomeextent. Table6.14reports the meanof eachdimensionofrelationshipcloseness fortheclose, intermediateanddistant clusters. Interestingly,themeanofthesolidaritydimension,whichisoperationalizedasthe automotivecomponents manufacturersconcern forthewelfareofthesupplier, is belowthe midpointofthescaleforallthreeclusters.Similarly,theaveragevaluesofthecommitment, shared benefit, and flexibility dimensions marginally breach the midpoint for the close supplier relationship cluster only. These findings suggest that, even for strategic relationships, close buyersupplier relationships within the automotive industry may grow significantly closer before reaching their full potential. Additionally, these findings tend to confirm the sentiments of Benton and Maloni (2005). In their study of buyersupplier relationshipsbetweenautomotiveOEMsandfirsttiersuppliers,BentonandMaloni(2005,p. 17) note, the industry consists of five manufacturers that account for 85% of the market

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share,andthesemanufacturerssourcefromasupplybaseofthousands.Suchanoligopolistic buying structure has created an asymmetric power environment. With a few manufacturers comprisingalargepercentageofsupplierssales,thesuppliermustbowtotheauthorityofthe buyer or risk financial collapse. The relatively low scores across the majority of the dimensions of relationship closeness may indicate that the focal firsttier automotive components manufacturer leverages asymmetries of power in much the same manner as an automotiveOEM. Further,Table6.14reportsthesizeofeachsupplierrelationshipcluster.Contraryto expectations, the close cluster is the largest of the three clusters onehundred and fiftyone supplierrelationshipsareclassifiedwithintheclosecluster.Whilethisresultinitiallyappears to contradict the assertions of both the Kraljic (1983) approach and the ABC approach (Wagner and Johnson, 2004) to supplier segmentation, this result may be an artifact of the sample frameused forthis study. Whilethis study includes suppliersthatare strategicand nonstrategic to the buying firm, all of the suppliers included in this study are bidlist suppliers to the focal automotive components manufacturer. As such, there may be an inherentbiastowardcloser,morestrategicsupplierswithinthesampleframe. The analysis of mean differences of demographic variables across supplier relationship clusters indicates that suppliers within the distant supplier relationship cluster have the highest average sales tothe buying firm and longest supply relationships with the buying firm. These findings are contrary to Kraljics (1983) assertions which hold that buyingfirmsshouldseekcloser,longertermrelationshipswithsuppliersofimportantgoods (where annual purchase dollar volume serves as a proxy for purchase importance). These findings have several implications. First, this finding challenges the notion that annual

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purchase volume serves as a valid indicator of purchase importance. As buying firms aggregatepurchaseswithfewersuppliersinanefforttoreducethesizeofthesupplybase,the discriminating role of annual purchase dollar volume may decline. Second, this result may suggesttheimportanceofothersegmentationcriteriaaskeydiscriminatorsbetweenstrategic and nonstrategic suppliers. For example, this study found that the relative importance of higherlevel supplier selection is significantly higher for the close supplier relationship cluster.Assuch,productfactors,suchascustomizationandtechnology newness may form thebasis fordeterminingpurchase importance.Third,the large sizeofsupplierswithinthe distant supplier relationship cluster suggests that nonstrategic suppliers may be general purpose suppliers, who provide a wide array of diversified commoditylike products. Conversely, strategic suppliers, who appear to be smaller in size, may sell more focused productlines and compete by providing differentiated products that are customized, incorporate newer technologies, or otherwise offer a superior set of features. Fourth, the generally negative relationship between relationship closeness and relationship length suggests that length of supply relationship may be an inappropriate proxy for relationship closeness. As suggested byGoffinetal.(2006),abuyersupplierrelationshipcharacterized by repeated transactions may not be a close buyersupplier relationship. A possible explanation for this unanticipated finding is that the close relationship cluster, which may consist of relatively strategic suppliers, may involve the purchase of goodsthat incorporate relatively newer technologies from nontraditional sources. As such, the buying firm may seekcloserelationshipswithrelativelynewersuppliersoftechnicallyadvancedproductsthat addsignificantvaluetothebuyingfirmsendproducts.

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Bycontrastingsupplymanagementpracticesandoperationalbenefitsacrosssupplier relationshipclusters,thenatureofeachsupplierrelationshipclusterwascharacterized. Three factors were significantly different across all three setsof supplier relationships: (1) higher level supplier selection criteria, (2) direct involvement, and (3) early supplier involvement. This finding suggests that these factors are the key differentiators between supplier relationship types. Higherlevel selection criteria refers to the relative importance that the buying firm placed on the suppliers service and support, technological innovation, and project management capabilities during the supplier selection process. Direct involvement concernstheextenttowhichthefocalmanufacturerprovidesdirecthelpand/orassistanceto thesupplyingfirm.Earlysupplierinvolvementconsiderstheextenttowhichthesupplieris involved early enough in the buying firms new product development process. Consistent with theoretical expectations, the relative importance of higherlevel supplier selection criteria,buyingfirmsuseofdirectinvolvementsupplymanagementactivities,andtheextent ofsuppliersearlyparticipationinthebuyingfirmsnewproductdevelopmentprocesswere significantly greater for close supplier relationships as compared to intermediate supplier relationshipsandsignificantlygreaterfor intermediatesupplierrelationshipsascomparedto distantsupplierrelationships. The comprehensiveness of the buying firms supplier evaluation procedures and the buying firms use of competitive pressure represent supply management practices that were significantlydifferentacrosstwoofthethreesupplierrelationshipclusters.Consistentwith developedtheory,thecomprehensivenessofsupplierevaluationwasgreaterforthecloseand intermediate supplier relationship clusters as compared to the distant supplier relationship cluster. However, contrary to theory, the buying firms use of competitive pressure is

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significantlygreaterfortheclosesupplierrelationshipclusterascomparedtotheintermediate and distant supplier relationship clusters. As suggested by the respecified causal model of relationship closeness, this contradictory finding may be attributable to the positive and significantrelationshipbetweenthebuyingfirmsuseofdirectinvolvement(integrative)and competitivepressure(distributive)supplymanagementpractices. Multiple comparison tests indicated that three operational benefits, in addition to supplier involvement, were significantly different across supplier relationship clusters: (1) barrierstotechnologysharing lackof interest,(2)barrierstotechnology sharing fearof information misappropriation, and (3) effectiveness of interfirm quality management (p < .10).Whiletheresultsofprincipalcomponentsanalysisindicatethatlackofinterestandfear ofinformationmisappropriationrepresentdistinctbarrierstotechnologysharing,thesefactors differ across supplier relationship cluster similarly. In accordance with prescribed theory, barriers totechnology sharing were less for the close and intermediate supplier relationship clustersascomparedtothedistantsupplierrelationshipcluster. Similarly,theeffectiveness of interfirm quality management practices is higher for the close and intermediate supplier relationshipclustersascomparedtothedistantsupplierrelationshipcluster. Notably, no significant differences across clusters were found for the extent of cost improvement opportunities or the intensity of upstream supplier collaboration. However, closer examination of multiple comparisons results indicates that cost improvement opportunities are greater for the close relationship cluster than the intermediate relationship cluster atthe p = 0.107 levelof significance. Additionally, suppliers propensity to pursue moreintegrativeactivitieswiththeirsuppliersisgreaterwithintheclosesupplierrelationship cluster than the distant supplier relationship cluster at the p = 0.056 level of significance.

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Whiletheseempiricalfindingsfailtosupportformaltestsofhypotheses,theseresultssuggest marginal support for the notion that cost improvement opportunities and upstream supplier collaboration aregreaterwithinsupplierrelationshipclusterscharacterizedbyhigherlevelsof closeness. The analysis of the nature and distribution of the focal automotive components manufacturers supplier relationship portfolio leads to four general conclusions. First, the focal manufacturer manages three distinct sets of supplier relationships within its supplier portfolio. The preceding empirical evidence shows that these sets of supplier relationships differ intermsofrelationshipcloseness(i.e.,theextenttowhicheachsetofrelationships is characterized by trust, commitment, solidarity, shared benefit, flexibility, and information sharing), supply management practices, and operational benefits. Second, the focal

manufacturer appears to actively manage the closeness associated with each set of relationshipsbyvaryingitslevelofinvestmentineachsetofrelationships.Theintensityof supplier selection, direct involvement, and ongoing supplier evaluation is highest for the closest supplier relationship cluster. Third, the closest set of supplier relationships, which receives the greatest investment from the buying firm, yields the greatest operational advantages. Fourth, higherlevel selection criteria, buying firms provisions of direct

assistance, and early supplier involvement arethe key differentiators across sets of supplier relationships. These factorsaresignificantlydifferent foreachsetof supplierrelationships. These results provide initial largescale survey support for the assertions associated with supplierportfoliomanagementtheory.

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CHAPTER8 CONTRIBUTIONS,LIMITATIONS&FUTURERESEARCH
8.1 Contributions

Resultsfromthisstudyofferseveralcontributionsthatadvancecurrentknowledgeinthefield ofsupplierrelationship management. Methodologically,this studycontributes new insights intosupplierrelationshipmanagementbystudyingrelationshipsthatcomposeasinglebuying firms global direct material supply portfolio, examining supply management from the suppliers perspective, shifting research focus upstream to include the set of relationships between a focal firsttier automotive components manufacturer and its direct material suppliers, and introducing several new measures of operational benefits. Theoretically, this studyaimstofurthergroundsupplierportfoliomanagementtheorybypositioningthistheory as a logical extension of transaction cost economic and relational governance theories. Empirically, this study proposes three models as the basis for testing sixteen hypotheses findings from the tests of hypotheses lend largescale empirical support toward the advancement of supplier portfolio management theory. The following paragraphs highlight themethodological,theoretical,andempiricalcontributionsofthisstudythatdifferentiatethis researchfrompriorwork. From a methodological perspective, this dissertation study offers several advancements. First, this study investigates relationship closeness across a single buying firmsglobalsupplybase.Paststudiesthathaveusedclusteranalysistoempiricallyidentify supplier relationship portfolios have examined sets of supply relationships across multiple buyingfirms (BensaouandVenkatraman,1995CannonandPerreault,1999). Inparticular, Bensaou and Venkatraman (1995) develop relational configurations using survey response

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data from buyers and engineers within three U.S. and eleven Japanese automakers. Alternately, Cannon and Perreault (1999) develop their taxonomy of business relationships using survey response data from a crosssection of NAPM members. As such, previous research may draw conclusions based on response data that may not accurately represent a singlebuyingfirmssupplierrelationshipportfolio.Thus,thisstudyprovidesinitialinsights intothedistribution ofbuyersupplierrelationshipsacrossasinglefirmsglobal supplybase. Second, this study examines supply management practices from a suppliers perspective. Field interviews with marketing, quality, and plant managers of automotive component suppliers suggest that buyers may tend to overstate the extent to which they provide assistance to supplier firms. However, dominant empirical models of supplier relationship configurations (Bensaou and Venkatraman, 1995 Cannonand Perreault, 1999), supplier development (Krause et al., 2000), and supplier involvement in new product development (Petersen et al., 2005) are based on response data obtained from the buying firms perspective. Following the approach of Prahinski and Benton (2004), this study contributestoextantresearchbyexaminingsupplymanagementpracticesandbuyersupplier relationshipclosenessfromthesuppliersperspective. Third, this study compliments past studies of supply management within the automotiveindustrybystudyingthesetof buyersupplierrelationshipsthatexistbetweenfirst and secondtier automotive components suppliers. A substantial body of prior research investigates the relationship management practices of automotive OEMs and their firsttier suppliers(BensaouandAnderson,1999Bensaou andVenkatraman,1995Clark,1989Clark and Fujimoto, 1991 Cusumano and Takeishi, 1991 Dyer, 1996c Dyer and Ouchi, 1993 Likeretal.,1998Likeretal.,1996Wasti andLiker,1997).Duringfieldinterviews,several

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purchasing executives, managers, and buyers noted that, within the automotive industry, relationships between vehicle manufacturers and their firsttier suppliers may differ significantly from those that exist between first and secondtier automotive components manufacturers.Mostnotably,automotiveOEMstypicallyenjoylargeasymmetriesofpower within their supply relationships due to their large size and industry concentration (Benton andMaloni,2005).However,inmanycases,firsttierautomotivesuppliersmaynotholdthis same power advantage over their secondtier suppliers. As such, firsttier automotive components manufacturers may implement supply management strategies and adopt relationship management approaches that significantly differ from those pursued by automotive original equipment manufacturers. Thus, this dissertation extends the study of buyersupplier relationships within the automotive industry upstream to include those between firsttierandsecondtierautomotivesuppliers. Fourth,thisresearchoperationalizesacomprehensivesetofnewoperationalbenefits. Previous supply management research has considered several operational performance outcomes,includingproductdevelopmentcycletimes(Hartleyetal.,1997Humphreysetal., 2004 Krause et al., 2000 Primo and Admundson, 2002 Ragatz et al., 2002), delivery (Frohlich and Westbrook, 2002 Humphreys et al., 2004 Prahinski and Benton, 2004), product/design quality (Humphreys et al., 2004 Krause et al., 2000 Petersen et al., 2005 Prahinski and Benton, 2004 Primo and Admundson, 2002 Ragatz et al., 2002), product price/cost (Frohlich and Westbrook, 2002 Humphreys et al., 2004 Prahinski and Benton, 2004PrimoandAdmundson,2002Ragatzetal.,2002),andresponsiveness(Humphreyset al.,2004Prahinski andBenton,2004).Additionally,severalstudieshaveconsideredbuyers andsupplierssatisfactionwiththesupplyrelationship(BentonandMaloni,2005Ganesan,

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1994Johnstonetal.,2004Maloni andBenton,2000).However,withtheexceptionofearly supplier involvement in new product development (Liker et al., 1998 Liker et al., 1996 Primo and Admundson, 2002 Wasti and Liker, 1997, 1999), very little attention has been giventointermediateoperationalbenefitsthatleadtoimprovedoperationalperformance.As such,thisstudycontributestoextantresearchbyexaminingtheextenttowhichrelationship closenessisrelatedtoseveralnewlydefinedoperationalbenefits,includingcostmanagement opportunities,barrierstotechnologysharing,effectivenessofinterfirmqualitymanagement, andupstreamsuppliercollaboration. Theoretically, this dissertation attempts to strengthen the underpinnings of supplier portfolio managementtheory bypositioningthistheoryasa logicalextensionto transaction costeconomicandrelationalgovernancetheories.Apotentialcriticismofsupplierportfolio managementtheoryisthatitisphenomenologicalratherthantheoreticalinnature.Similarly, muchresearchthathasservedtodevelopthesupplierportfoliomanagementconceptmaybe classifiedasprocedural in nature,defininga stepwise approachtosupply management(for example,seeKraljic,1983OlsenandEllram,1997Turnbull,1989). Conversely,thisstudy has sought to advance supplier portfolio management theory as complementary to previous theories of buyersupplier relationships. In relative terms, the value of supplier portfolio managementtheory lies in itsexplicitrecognitionofa firmslimited internalresources. As such, supplier portfolio management theory presents a particularly appealing lens through which the relationships betweenthe strategic importance of the supply relationship, buyers use of supply management practices, buyersupplier relationship closeness, and operational benefitsmaybeexamined.

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Empirically, this study has proposed three models as the basis for testing sixteen hypotheses:(1)asecondorderfactormodelofrelationshipcloseness,(2)acausal modelof relationship closeness, and (3) a supplier relationship portfolio model. In an initial set of analyses,theviabilityof asecondorderfactormodelofrelationshipcloseness,which consists of six firstorder dimensions trust, commitment, information sharing, solidarity, shared benefit,andflexibility,wasevaluated. Assessmentofthefullmeasurementmodelsuggested theomissionofthecommitmentdimension.Further,theflexibilitydimensionwasmeasured with a single item and was subsequently dropped from the secondorder factor model. Following the approach of Stewart and Segars (2002), the fit of the refined secondorder model was compared to that of a onefactor firstorder model and a fourfactor firstorder model of relationship closeness. Results of these validation tests suggest that relationship closeness iswellrepresentedbyasecondorderfactormodelthatconsistsof fourfirstorder factors:trust,solidarity,informationsharing,andsharedbenefit. FollowingtheapproachofZhangetal.(2003),relationshipclosenesswasreducedtoa firstorder factor having five indicators that measure trust, solidarity, information sharing, sharedbenefit,and flexibility. An initial nomological networkwasdevelopedby validating therelationshipbetweenrelationshipclosenessandrelationshipgoodness.Resultsfromthis analysis suggestthat buyersupplier relationship closeness is highlyrelatedtothe suppliers perceptionoftheoverallgoodnessoftherelationship. In a second set of analyses, the causal relationships amongst strategic importance of the relationship, integrative supply management activity, distributive supply management activity,andrelationshipclosenessweresimultaneously tested.Resultsfromcausalmodeling support the hypothesized positive relationships between strategic importance of the

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relationship and integrative activity and between integrative activity and relationship closeness. However, the anticipated negative relationships between strategic importance of the relationship and distributive activity and between distributive activity and relationship closeness were not empirically supported. Results from the structural model indicate that there is no relationship between buying firms use of distributive activity and relationship closeness.Further,contrarytoexpectations,thepathcoefficientbetweenstrategicimportance oftherelationshipanddistributiveactivitywaspositiveandsignificant. Drawingsupportfromrelationalgovernancetheory,thecausal modelofrelationship closeness was respecified to include a causal path from integrative activity to distributive activity.Resultsfrommodelestimationsupportthenotionthatbuyersuseofintegrativeand distributivesupplymanagementactivitiesarepositivelyrelated.Further,resultsfromthere specified model indicate that integrative activity fully mediates the positive relationship initiallyfoundbetween strategicimportanceoftherelationshipanddistributiveactivity. Inthefinalsetofanalyses,thenatureanddistributionofsupplierrelationshipswithin the focal automotive components manufacturers supplier relationship portfolio were explored. Using a split sample approach to cluster analysis and the six dimensions of the relationshipclosenessconstructasclassificationcriteria,athreeclustersolutionwasderived. The means of the classification criteria and select demographic variables were used to describethedistributionofclosesupplierrelationshipsacrossthebuyingfirmssupplybase. Further,thenatureofeachsetofsupplyrelationshipswasassessedbycontrastingtheextent towhichacomprehensivesetofsupplymanagementpracticesandoperationalbenefitsdiffer across supplier relationship clusters. As noted in the preceding chapter, this exploratory analysisledtothedevelopmentofseveralgeneralconclusions.First,thefocalmanufacturer

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managesthreedistinctsetsofsupplierrelationshipswithinitssupplierportfoliothesesetsof supplierrelationshipsvaryintermsofrelationshipcloseness,intensityofsupplymanagement practices, and derived operational benefits. Second, the intensity of the buying firms supplier selection,direct involvement,andongoing supplierevaluation varies in accordance withtheclosenessofeachsupplierrelationshipcluster.Third,greateroperationaladvantages arederivedwithinclosersupplierrelationshipsclustersthathavebenefitedfromhigherlevels of direct involvement supplier development efforts. Fourth, higherlevel selection criteria, buying firms provisions of direct assistance, and early supplier involvement are the key differentiatorsacrosssetsofsupplierrelationships. Inaggregate,theseresultsprovideinitial largescale survey support for the assertions associated with supplier portfolio management theory. 8.2 Limitations

Thereareseveralnoteworthylimitationsassociatedwiththisresearch.Assuch,conclusions drawn from this study must be interpreted within the context of the following limitations. First, this study focused on relationships between a single automotive components manufacturer and its global direct materials suppliers. This methodology may afford a greatercontroloversourcesofextraneousvariationduetoindustrycharacteristics,noise,and the like (Mohr and Spekman, 1994, p. 140), thus enhancing the level of internal validity associated with this study (Cook and Campbell, 1979). However, a potential limitation concerns the ability to generalize this studys findings to other firms or industries. While several studies have investigated phenomenon using a sample drawn from one or two organizations(seeTable8.1below),thisapproachnecessarilyresultsinsomelossofexternal validity.Therefore,theresultsofthisstudyshouldbecautiouslygeneralizedtoothersettings.

291

Asecondpotentiallimitationofthisstudyinvolvestherelianceonbidlistsuppliersto form the sample frame for this study. The buying firm defines a bidlist supplier as a preferred supplier and expects to continue to purchase goods from these preferred suppliers well into the future. While the focal manufacturers bidlist consists of both strategic and nonstrategicsuppliers,theratioofstrategictononstrategicsuppliersthatcomposethebid list may notberepresentativeoftheentiresupplybase.This bias may beevidenced bythe resultsofthethreeclustersolutionwhichshowthattheclosesupplierrelationshipclusteris thelargestofthethreeclusters.Assuch,conclusionsdrawnfromthisstudymaybelimitedto relationships between a manufacturer and its preferred suppliers rather than between a manufactureranditsentiresupplybase. A third limitation concerns the potential bias introduced by deleting a substantial number of incomplete supplier responses. Response bias tests based on respondent demographic informationsuggestthatthesuppliers included inthe finalsample have higher salestothe focal manufacturerand maintain longerterm supplyrelationshipswiththe focal manufacturerascomparedtothosesuppliersthatwereomittedfromthe finalsampledueto incompleteresponses.However,testsof bias basedonarandomly selectedsetofconstruct measures indicate no significant differences between responses of suppliers included in the finalsampleandthoseexcludedduetomissingdata.Assuch,theimpactofthepotentialbias attributabletothedeletionofincompleteresponserecordsmaybeminimal.

292

Table8.1: Organizationspecificsamplingapproaches
ResearchStudy AdinnourHelmetal. (2005) BentonandMaloni (2005) BoyerandHult(2005) Boyeretal.(2002) BrownandChin (2004) deJonganddeRuyter (2004) Forker(1997) ForkerandStannack (2000) Journal DecisionSciences JOperationsManag DecisionSciences JOperationsManag DecisionSciences DecisionSciences Sample Sampleof176studentsofanintroductorypsychologyore commercecourse Sampleof180Tier1supplierstoDaimlerChryslerandHonda ofAmerica Sampleof1150customersoftwoonlinegrocerystores Sampleof417customersofOfficeDepot. Sampleof248independentservicerepresentativesofasingle manufacturerandamatchedsampleof3926customers Sampleof61selfmanagedteamsofalargeDutchbankanda matchedsampleof1724customersofthe61selfmanaged teams Sampleof264suppliersofaFortune500aerospace manufacturer Matchedsampleof181suppliersandcorrespondingbuyersofa Fortune500electronicsmanufacturerandasecondmatched sampleof203suppliersandcorrespondingbuyersofaFortune 500aerospacemanufacturer Sampleof292suppliersofaFortune500electronic manufacturer Surveyedamatchedsampleof181suppliersandcorresponding buyersofaFortune500electronicsmanufacturer. Sampleof2001customersofalarge,U.S.basedconsumerISP Sampleof162productionworkersofasinglePCBassembly plant Sampleof180Tier1supplierstoChryslerCorporationand HondaofAmerica Sampleof417customersofOfficeDepot. Sampleof242patronsoftheChicagoSymphonyOrchestra Sampleof121directmaterialsupplierstoaKoreanAutomaker Sampleof400VIPcustomersofarenownedtouringcircus company Sampleof98usersofHotwired,Wired internetthemedwebsite secondstagesampleof1258AOLusers Sampleof57plantsthatwerepastwinnersandfinalistsof IndustryWeeksAmericasBestcompetition

JOperationsManag EuropJSupply& PurchManag

ForkerandMendez (2001) Forkeretal.(1999) Froehle(2006) KaruppanandGanster (2004) MaloniandBenton (2000) OlsonandBoyer (2003) Olsonetal.(2005) Parketal.(2001) PullmanandGross (2004) Staffordetal.(2004) Swinketal.(2005)

IntJOperations& ProductionManag JSupplyChain Manag DecisionSciences JOperationsManag JBusinessLogistics JOperationsManag JOperationsManag JOperationsManag DecisionSciences DecisionSciences DecisionSciences

293

A fourthlimitationofthisstudy isthateachresponserecordisbasedonsurveydata obtainedfromasinglerepresentativeineachsupplierfirm.Assuch,commonresponsebias may threaten the validity of this study (Lindell and Whitney, 2001 Podsakoff and Organ, 1986). The potential for common method variance arises when correlationbased statistical methodsareusedtoassesssingleinformantcasedata(CampbellandFiske,1959).Further, this study relied solely on supplier response data to assess each buyersupplier relationship. Ideally, a dyadic approach to data collection would be employed in order to measure the perceptionsofboththebuying firmandthesupplier firm.Adyadicapproach mayserveto mitigate common method bias and enhance the validity of the conclusions drawn from the study. Afifthlimitationofthisstudyisthatseveralconstructsweregaugedusingsingleitem measures. In particular, the strategic importance of the buyersupplier relationship, early supplierinvolvement,andupstreamintegrativesupplymanagementwereeachmeasuredwith asinglequestionnaireitem.Assuch,scalereliabilityandconstructvalidityforeachofthese aforementionedconstructswasnotassessedwithinthisstudy. 8.3 FutureResearch

The limitations associated with this research present several viable opportunities for future research. In particular, this study could be extended to include manufacturers in different positions of the supply chain, different industries, or manufacturers having different demographics. Additionally, the study of supplier portfolio management may benefit from dyadicapproachtodatacollection.Aresearchmethodologythatisbasedontheassessment ofbothbuyerandsuppliersurveyresponsedatamaylendnewinsightsintothisphenomenon. Finally, future studies of portfolio management may consider how supplier relationship

294

portfolioschangeovertime.Usingalongitudinalapproach,futureresearchmayexaminethe change in number and nature of the supplier portfolio, how supply management practices affecttherelationshipportfolioovertime,andtheextenttowhichoperationalbenefitschange overaspecifiedduration.

295

APPENDIXA
TableA.1: Factorloadingsforinformationsharingb,c
Identifier omc4.11 omc4.21 omc4.31
a b c

Item Yourfirmcommunicatesopenly/honestlyaboutquality problemsa Yourfirmcommunicatesopenly/honestlyaboutdelivery problemsa Yourfirmcommunicatesopenly/honestlyaboutlaunch problemsa

Factor Loading .948 .962 .948

AVE .908

Scale: 1=verylittle/noextent, 2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=409 KaiserMeyerOlkinmeasure=.768Bartlettstestofsphericity=1218.90(p<.001)

TableA.2: Factorloadingsfortrustb,c
Identifier Item Factor Loading .848 .886 .876 AVE .757

bocwr1.1 <<MFGR>>treatsyourfirmasvaluedsupplier a bocwr4.1 Yourfirmtrusts<<MFGR>>a bocwr9.1 <<MFGR>>isfairinitsdealingsa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=421 KaiserMeyerOlkinmeasure=.721Bartlettstestofsphericity=509.17(p<.001)

TableA.3: Factor loadingsforsolidarityb,c

Identifier bfr3.1 bfr4.1 bfr5.1
a b c

Item Given<<MFGR>>sexpectations,yourfirmsabilityto makeacceptablelongtermreturna <<MFGR>>sconcernforyourfirmsprofitmarginsa <<MFGR>>coverssunkcostswhennewprogramsare delayed,cancelled,orhavelowervolumesa

Factor Loading .749 .827 .816

AVE .637

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=385 KaiserMeyerOlkinmeasure=.664Bartlettstestofsphericity=225.24(p<.001)

296

TableA.4: Factor loadingsforcommitment b,c

Identifier Item Factor Loading .740
a a

AVE .690

bocwr8.1 <<MFGR>>recognizesyourfirmssupporta bocwr2.1 <<MFGR>>honorscontractualcommitments

a b c

.850 .894

bocwr3.1 <<MFGR>>livesuptospiritofcommitments

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=415 KaiserMeyerOlkinmeasure=.639Bartlettstestofsphericity=385.05(p<.001)

TableA.5: Factorloadingsforsharedbenefit b,c

Identifier bfr1.11 bfr1.21
a b c

Item <<MFGR>>sharessavingsthatreducepricea <<MFGR>>sharessavingsthatreduce/avoidcostsa

Factor Loading .963 .963

AVE .927

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=409 KaiserMeyerOlkinmeasure=.500Bartlettstestofsphericity=530.59 (p<.001)

TableA.6: Factorloadingsforrelationshipclosenessb,c
Identifier m_infosh m_trust Item Meanofomc4.11,omc4.21,omc4.31 Meanofbocwr1.1,bocwr4.1,bocwr9.1 Factor Loading .537 .802 .732 .614 .751 AVE .482

m_solida Meanofbfr3.1,bfr4.1,bfr5.1 m_shbene Meanofbfr1.11,bfr1.21 bcpp4.1 <<MFGR>>givesflexibilitytomeetcostobjectivesa

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent, 5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=393 KaiserMeyerOlkinmeasure=.773Bartlettstestofsphericity=376.76 (p<.001)

297

TableA.7: Factorloadingsforrelationshipgoodnessd,e
Identifier bocwr13 bocwr12
a

Item Degreethat<<MFGR>>isapreferredcustomer a Changeinoverallrelationshipwith<<MFGR>>

b c

Factor Loading .816 .838 .766

AVE .652

bocwr5.1 Extentofgoodoverallrelationshipwith<<MFGR>>
b

c d e

Scale: 1=wouldprefernotdoingbusinesswiththem,2=ambivalent,3=somewhatpreferred,4=verypreferred, 5=mostpreferred Scale: 1=muchdeteriorated,2=deteriorated,3=moderatelydeteriorated,4=stayedthesame,5=moderately improved,6=improved,7=muchimproved Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=269 KaiserMeyerOlkinmeasure=.672Bartlettstestofsphericity=171.83 (p<.001)

TableA.8: Factorloadingsfordistributiveactivityb,c
Identifier Item Factor Loading 0.5721 0.7830 0.8401 0.7280
a

AVE .550

bqcc2.21 Yourfirmfeelspressuretoreducetotalcosta bqcc2.31 Yourfirmfeelspressuretoimprovequality bqcc2.41 Yourfirmfeelspressuretoimprovedeliverya bqcc2.51 Yourfirmfeelspressuretoupgradetechnologya

a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=375 KaiserMeyerOlkinmeasure=.705Bartlettstestofsphericity=312.37(p<.001)

298

TableA.9: Factorloadingsforintegrativeactivityb,c
Identifier bqcc3.11 bqcc3.21 bqcc3.31 Item <<MFGR>>helpsreducecostsa <<MFGR>>helpseliminatewaste
a a

Factor Loading 0.7991 0.8518 0.7385 0.8296 0.7960 0.7433 0.7041

AVE .593

<<MFGR>>helpsimprovequality

bcpp15.1 <<MFGR>>workswithyourfirmonsupplychain designimprovement a bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturinga bcpp15.3 <<MFGR>>workswithyourfirmonpartsscheduling improvements a bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychaina
a b c

Scale: 1=verylittle/noextent,2=littleextent,3=someextent,4=greatextent,5=verygreatextent LoadingsestimatedusingSPSSv11.5.0principalcomponentsanalysis,n=368 KaiserMeyerOlkinmeasure=.876Bartlettstestofsphericity=1392.62(p<.001)

299

APPENDIXB
TableB.1: Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct fitstatistics
FitIndex (df) /(df) NFI RFI TLI CFI RMSEA
a

Value
a

279.31(97) 2.88 .898 .857 .901 .930 .067

p<.001

TableB.2: Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct structuralpathcoefficientsforrevisedmodel

Path Relationshipimportanceto Integrativepractices Distributivepractices Integrativepracticesto Relationshipcloseness Distributivepracticesto Relationshipcloseness
a b c

StdPath Coefficient .506 .221 .845 .025

tvalue

8.328a 3.076b 7.127a .511c

p<.001 p=.002 p>.10

300

TableB.3: Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct explainedvarianceforrevisedmodel

EndogenousFactor Integrativepractices Distributivepractices Relationship Closeness
2 R

.256 .049 .720

TableB.4: Relationshipclosenesscausalmodelwithreviseddistributiveactivityconstruct indicatorpathcoefficientsforrevisedmodel

Identifier DistributiveActivityto bqcc2.21 bqcc2.31 bqcc2.41 Yourfirmfeelspressuretoreducetotalcost Yourfirmfeelspressuretoimprovequality Yourfirmfeelspressuretoimprovedelivery .417 .783 .705 .654 .697 .629 .834 .724 .720 .710 Constrained 6.14a 6.52a Constrained 18.80a 13.10a 13.85a 12.48a 12.40a 12.36a Item Standardized Loading tvalue

IntegrativeActivityto bqcc3.11 <<MFGR>>helpsreducecosts bqcc3.21 <<MFGR>>helpseliminatewaste bqcc3.31 bcpp15.1 <<MFGR>>helpsimprovequality <<MFGR>>workswithyourfirm onsupplychain designimprovement bcpp15.2 <<MFGR>>workswithyourfirmonlean manufacturing bcpp15.3 <<MFGR>>workswithyourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain RelationshipClosenessto m_infosh m_trust Meanofomc4.11,omc4.21,omc4.31 Meanofbocwr1.1,bocwr4.1,bocwr9.1

.409 .747 .649 .513 .650

Constrained 7.66a 7.34a 6.58a 7.28a

m_solida Meanofbfr3.1,bfr4.1,bfr5.1 m_shbene Meanofbfr1.11,bfr1.21 bcpp4.1

a

<<MFGR>>givesflexibilitytomeetcostobjectives

p<.001

301

FigureB.1:Relationshipclosenesspathdiagramwithreviseddistributiveactivityconstruct

bqcc2.21

e11 e12 e13

Distributive Practices

bqcc2.31 bqcc2.41

d2 H4:() H2:()
m_infosh m_trust

e1 e2 e3 e4 e5

Relationship Importance

Relationship Closeness

m_solida m_shbene bcpp4.1

d3 H3:(+) H1:(+) bqcc3.11 bqcc3.11 bqcc3.21 e21 e22 e23 e24 e25 e26 e27 e28

Integrative Practices

bcpp15.1 bcpp15.2 bcpp15.3

d1 omr1.1 bcpp6.1

302

APPENDIXC
TableC.1: Respecified relationship closeness causal model with revised distributive activityconstructmodelfitstatistics
FitIndex (df) /df NFI RFI TLI CFI RMSEA
2 2

Value 262.42(97) 2.71 .904 .865 .911 .936 .063

TableC.2: Respecified relationship closeness causal model with revised distributive activityconstructstructuralpathcoefficients
Path Relationshipimportanceto Integrativeactivity Distributiveactivity Integrativeactivityto Relationshipcloseness Distributiveactivity
a b

PathCoefficient .494 .015 .849 .314

tvalue 8.097a 0.182b 7.159a 3.656a

p<.001 p=.855

303

TableC.3: Respecified relationship closeness causal model with revised distributive activityconstructexplainedvariance
EndogenousFactor Integrativeactivity Distributiveactivity Relationship Closeness
2 R

.244 .103 .720

TableC.4: Respecified relationship closeness causal model with revised distributive activityconstructindicatorpathcoefficients
Identifier Item Standardized Loading .418 .754 .733 .654 .697 .637 .833 .724 .721 .706 tvalue

DistributiveActivityto bqcc2.21 Yourfirmfeelspressuretoreducetotalcost bqcc2.31 bqcc2.41 Yourfirmfeelspressuretoimprovequality Yourfirmfeelspressuretoimprovedelivery

Constrained 6.46a 6.36a Constrained 18.80a 13.19a 13.85a 12.49a 12.43a 12.30a

IntegrativeActivityto bqcc3.11 <<MFGR>>helpsreducecosts bqcc3.21 bqcc3.31 bcpp15.1 bcpp15.2 bcpp15.3 <<MFGR>>helpseliminatewaste <<MFGR>>helpsimprovequality <<MFGR>>workswithyourfirmonsupplychain designimprovement <<MFGR>>workswithyourfirmonlean manufacturing

<<MFGR>>workswithyourfirmonparts schedulingimprovements bcpp6.1 <<MFGR>>workswithyourfirmtoestablish competitivesupplychain RelationshipClosenessto m_infosh Meanofomc4.11,omc4.21,omc4.31 m_trust Meanofbocwr1.1,bocwr4.1,bocwr9.1 m_solida Meanofbfr3.1,bfr4.1,bfr5.1 m_shbene Meanofbfr1.11,bfr1.21 bcpp4.1 <<MFGR>>givesflexibilitytomeetcostobjectives
a

.410 .747 .650 .514 .650

Constrained 7.69a 7.37a 6.68a 7.30a

p<.001

304

FigureC.1: Respecified relationship closeness path diagram with revised distributive activityconstruct

bqcc2.21

e12 e13 e14

Distributive Practices
d2

bqcc2.31 bqcc2.41

m_infosh m_trust

e21 e22 e23 e24 e25

Relationship Importance

Relationship Closeness

m_solida m_shbene bcpp4.1

d3

bqcc3.11 bqcc3.11 bqcc3.21

e1 e2 e3 e4 e5 e6 e7

Integrative Practices

bcpp15.1 bcpp15.2 bcpp15.3

d1 bcpp6.1

305

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