The Meaning and Origin of Trust in Buyer-Supplier Relationships

Article excerpt

INTRODUCTION

Partnerships or alliances between suppliers and buyers are increasing in frequency and importance. Much evidence supports this statement. Lorange and Roos provide numerous examples of successful alliances in both Europe and the United States and suggest that strategic alliances will be the general business trend in the 1990s and beyond.[1] Blodgett demonstrates how partnerships can develop advantages to both parties involved in the relationship.[2] Scheuing argues that buyer-supplier partnering is the wave of the future.[3] Burt and Doyle provide examples of how partnering increases competitive advantages for both the supplier and the buyer.[4] Hendrick and Ellram conducted a major research study on the topic and concluded that supplier partnerships will continue to be an enduring major strategic purchasing initiative.[5]

Why is attention to buyer-supplier alliances or partnerships increasing? Evidence indicates that alliances or partnerships increase a firm's competitive posture,[6] have an important role in reducing cycle time,[7] and enhance quality improvement efforts.[8] Regardless of the reasons given for partnering, many purchasing experts believe that partnering is a trend that will continue into the next century.[9]

Because supplier-buyer alliances or partnerships are becoming more important, several studies have analyzed these relationships. Trust is inevitably mentioned as an important variable in the development and maintenance of relationships. For instance, Ellram determined the average ratings of factors leading to ineffective partnerships. Lack of trust was ranked by the buyers as the third highest out of 19 factors, while the supplier ranked lack of trust as the fourth highest factor.[10] Based on a series of studies, trust is seen as a critical component in buyer-supplier relationships.[11]

The research on supplier-buyer relationships clearly indicates that trust is important, but is seldom addressed specifically. Accordingly, this article focuses on trust in buyer-supplier relationships. First, a definition of trust based on the current literature is presented. Second, practicing purchasing managers indicate what behaviors demonstrate trust and what behaviors erode trust. Third, the definition and list of behaviors is then compared. Fourth, the origins of trust are addressed. Specifically, the role of identity, image, and reputation is reviewed. Next, six managerial and research issues or questions about trust in buyer-supplier relationships are presented. And finally, managers' perspectives on these six issues are presented.

A LITERATURE-BASED DEFINITION OF TRUST

Although trust is frequently mentioned in discussions about buyer-supplier relationships, it is seldom defined. As one researcher stated, "Nobody probably understands what is meant by the word trust."[12] To better understand and discuss a concept, it must first be defined. Several researchers have made tentative attempt to define trust. Ring and VanDeVen state that two views on trust can be found in management and sociology literature: (a) a business view based on confidence or risk in the predictability of one's expectations, and (b) a view based on confidence in another's goodwill.[13] In the risk-based view of trust, parties hedge against uncertain states of nature, adverse selection, and ethical hazard through formal contractual means such as guarantees, insurance mechanisms, and laws. The second view of trust emphasizes faith in the moral integrity of others' goodwill.

Hosmer thoroughly analyzed the definition of trust as it is used from various approaches in organizational theory and philosophy. He concludes that:

Trust is the expectation by one person, group, or firm of ethically justifiable behavior - that is, morally correct decisions and actions based upon ethical principles of analysis - on the part of the other person, group or firm in a joint endeavor or economic exchange. …