Size and power not everything in supplier relations

The size of a firm may have a major impact on how it is perceived in supply chain dealings but the soft skills of buyers have an even greater impact, according to research.

study from Penn State Smeal College of Business found that while the size and power had a large impact on how a firm was perceived, trust, reciprocity and interpersonal relationships had a greater importance.

If buyers and suppliers had differing levels of trust in each other, one or the other was more likely to engage in opportunistic behaviour, such as hiding information or exaggerating needs to further their own interests.

A disparity in size between a buyer and supplier company could make the smaller one seem vulnerable, particularly when it is a supplier, though sometimes it was smaller suppliers that put pressure on larger buyers rather than the reverse, the study found.

“In business settings, we tend to believe that the more that a business trusts the other, that business will be perceived as less opportunistic, in other words, the higher the level of trust, the lower the opportunistic behavior,” said Veronica Villena, assistant professor of supply chain management at Smeal.

To an extent the study confirmed this. While bigger buyers tended to perceive smaller suppliers as less likely to engage in opportunistic behaviour, smaller suppliers perceive their bigger buyers as more likely to do so.

However, smaller buyers did not necessarily consider their bigger suppliers likely to engage in the same opportunistic behaviour.

Researchers found relationships were most likely to be influenced negatively when there were imbalances in levels of trust and when there was a lot at stake.

“Suppliers, in general, have more to lose in a relationship and therefore tend to distrust their larger partners more than buyers do,” said Villena.

The study was based on a survey of 106 companies in Spain.

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