Academic journal article Journal of Supply Chain Management

Purchasing Managers' Perceived Bias in Supplier-Selected Referrals

Academic journal article Journal of Supply Chain Management

Purchasing Managers' Perceived Bias in Supplier-Selected Referrals

Article excerpt

INTRODUCTION

Buyer-supplier relationships range from arms-length transactions to strategic sourcing relationships where purchasing firms seek to build long-term relationships with suppliers (McHugh, Humphreys & McLvor, 2003). To evaluate suppliers for long-term relationships, purchasing managers evaluate not only the product but also suppliers' capabilities in implementing, customizing and providing support in the future, especially when the solutions are high in complexity and require customization [e.g., enterprise resource planning (ERP) solutions; Lonsdale, 2001]. Wallenburg (2009) finds that as solutions grow in complexity, buying firms are more likely to seek suppliers' proactive involvement in fulfilling their requirements from suppliers' solution. Therefore, when evaluating suppliers for complex solutions, purchasing managers seek information about suppliers' abilities to provide solutions that extend beyond product attributes.

One of the ways purchasing managers evaluate suppliers is by asking suppliers for a reference customer. As Mochal (2010) advises purchasing managers: "One of the activities that should be on your evaluation checklist is talking to companies that currently use the product. The purpose of checking references is to get past the marketing and sales hype and hear some real opinions." To provide a reference, suppliers select an existing or previous customer as a reference customer and ask the reference customer to give a referral for suppliers to purchasing firms--a supplier-selected referral.

Supplier-selected referrals differ from the other information sources purchasing managers use to evaluate suppliers in one key aspect: most information sources (such as consultants) are selected by buying firms, that is, by purchasing managers, whereas reference customers are selected by suppliers. Furthermore, purchasing managers know that suppliers have selected the reference customer, and thus, likely perceive a bias in the referral in favor of suppliers. Suppliers in the industry also recognize that purchasing managers perceive a bias in supplier-selected referrals and try to reduce this perceived bias. For example, SAS Inc. encourages "endorsement-free referencing" by asking its reference customers to talk to buying firms' purchasing managers about everything concerning SAS "the good, the bad, and the ugly" (Lee, 2008). Thus, by asking a reference customer to include some negative information in the positive referral, SAS hopes to reduce purchasing managers' perceived bias in the supplier-selected referral.

A. 1 Given the importance suppliers attach to purchasing managers' perceived bias in a supplier-selected referral, we focus on the following research question: What factors influence purchasing managers' perceived bias in a supplier-selected referral?

To answer this question, we first engage in exploratory research involving interviews with purchasing managers to understand the role of purchasing managers' perceived bias in supplier-selected referrals. We build our conceptual framework based both on the results of those interviews and on extant research on communication in referrals (e.g., Gilly, Graham, Wolfinbarger & Yale, 1998) and on managers' information processing biases (e.g., Mantel, Tatikonda & Liao, 2006). We then test our conceptual framework with an experimental design, using purchasing managers who are members of the Institute of Supply Management as respondents.

We find that purchasing managers perceive the least bias in a referral when the reference customer gives a two-sided referral (i.e., a referral with some negative information about the supplier along with mainly positive information) as compared to a one-sided referral. We also find that the reference customer's credibility does not have a significant effect on purchasing managers' perceived bias in the referral. This finding indicates purchasing managers perceive a bias because suppliers have selected the reference customer, and not because of the credibility of a specific reference customer (as long as the reference customer has some credibility). …

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