Research Feature: The Dark Side of Close Buyer-Supplier Relationships
Is it possible to get too close to your suppliers? And how do these critical buyer-supplier relationships affect the social and environmental performance of supply chains?
And how can we avoid the dark side of relaxed systems of checks and balances?
Why should we care about the supply chain?
The famous bank robber Willie Sutton was once asked, "Why do you rob banks?" He was reported to have said: "Because that is where the money is!"
Why focus on supply chain? Because that is where the money--and the environmental and social innovation opportunities--exist in abundance. Consider the figure below from State of Green Business 2017.
Image Credit: State of Green Business, 2017
We'll never address the direct and supply chain impacts without more transformational buyer-supplier relationships. How do we get there?
Three Steps to Avoiding the Dark Side
Assistant Professor Veronica Villena has been trying to answer these and other pressing sustainable supply chain questions for years. In this 2015 paper, Villena and her co-authors pinpoint practical steps to maintain high-integrity, optimized relationships with suppliers.
Overview from Supply Chain Management Review:
It is all too easy for relationships between companies and their suppliers to become too chummy and for essential checks and balances to get less attention than they require. Often, the longer and deeper the relationship, the cozier it can be—and thus at much greater risk of underperformance. Here’s how to identify and guard against those risks.
And a Penn State news article presents a few more clues from a 2015 interview with Dr. Villena:
The Supply Chain Management Review article breaks down the sources of risk into three categories:
Loss of objectivity - companies placing too much trust in their suppliers and thus becoming less objective.
Partner opportunism - buyers who trust their suppliers too much are reducing their monitoring effort beyond what is optimal while suppliers might take advantage of this situation.
Knowledge redundancy - the value of information decreases as the information becomes repetitive and redundant.
The authors lists three mechanisms that organizations should implement to reduce the risks of moving into the dark side:
Set challenging goals - challenging goals reduce overconfidence and promote new ways of thinking.
Implement a rotational policy – rotating purchasing managers avoids excessive camaraderie between the organization’s employees and their counterparts in the supplying organizations. It also ensures the disclosure of more accurate supplier performance data.
Use contracts as a coordination and control tool – clearly defined contractual terms help organizations promote objectivity, reduce incentives to misbehave and move more confidently out of a dysfunctional relationship.