Dynamics of Buyer-Seller Co-Dependency in Optimizing Functional Efficiency

Dynamics of Buyer-Seller Co-Dependency in Optimizing Functional Efficiency

Dr. Rajagopal (Monterrey Institute of Technology and Higher Education ITESM, Mexico) and Amritanshu Rajagopal (Dentalia, Mexico)
DOI: 10.4018/978-1-60566-248-0.ch007

Abstract

The role of sales network is fundamental within the value creation chain of the firm, as creating shareholder value is strictly linked with creating buyer value. As supplier networks are the main point of contact with buyers, choosing the best possible supply structure is vital. Firms are increasingly implementing electronic distribution strategies to augment existing physical infrastructure for product and service delivery. The study analyzes the impact of channel function performance on relationship quality which is moderated by the extent dependence structure of the relationship. In this process, the impact of supplier function performance on different dimensions of relationship quality in reference to satisfaction, trust, commitment and conflict under various dependence structures have also been diagnosed and analysed.
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Review Of Literature

Over time, the horizontal consolidation of product delivering process and growth of automation in marketing activities have driven the manufacturers towards a convenient approach, bypassing the supply channels and to go for direct marketing. It has been observed that conventional suppliers have responded to this situation or other destructive acts in a number of different ways. Some had shown inclination for the exit, in the belief that a better quality of service and relationship advantages could be found elsewhere. Others are moved by loyalty to voice complaint, protest or anger, with a view to eliciting an improvement in the quality of service. It is contended that enhanced understanding of this important aspect of business-to-business relationships leads to the development of more closely aligned strategic plans which may improve return on relational investment. This has important implications for the development of theory as well as the behavioral stances adopted by individuals engaged in relational development through the process of face-to-face negotiation (Harwood, 2006).

Suppliers also adapt frequently the developing countervailing power through dependence-balancing actions. These actions are designed to strengthen transactional bonds that are explained through the buyer-seller relationships. Such bonds often manifest themselves in anticipation of improved channel services to buyers. Managers responsible for procuring services build relationship based on co-dependency and collaboration between the supplier and purchaser of services. The burden of transaction cost economics encourages aggregation of the services supply chain which in turn, when managed carefully, facilitates an improved working/partnering opportunity with a few select suppliers. The suppliers benefit in turn by increasing volumes, allowing them to protect margins and the purchasers benefit through overall lower total cost of service, more attentive suppliers and potentially a much enhanced working relationship (Rogers, 2006).

The effect of functional performance on relationship quality in situations characterized by high relative dependence of the supplier on the buyer is largely governed by the effective channel functions. Buyer supplier collaboration may have significant effects on the focal firm's in reference to the flexibility, responsiveness and modularization capabilities which would help building capability of supplier firms towards increasing competitive advantage and gaining high customer value (Squire et al, 2005). A study on buyer-seller relationships is commissioned in some well-established frameworks such as transaction cost theory, political economy theory, social exchange theory and resource dependence theory (Robicheaux and Oleman, 1994). In addition, empirical models, drawing on a variety of management disciplines, have been proposed and tested in the literature. Optimal performance of relational contracts in partnerships such as joint ventures or buyer-seller alliances appears to be a continuing process but may require termination of the relationship after bad outcomes. Payments between the partners depend on their relative performance. In the case of bilateral trade with specific investments, optimal relational contracting results in a price that varies with cost and demand conditions but is more stable than under spot market bargaining (Doornik, 2006).

A four-way classification of quality definitions that incorporates excellence, value, conformance to specifications, and meeting exceeding buyer requirements has been set to argue that the diversity inherent in these definitions implies that the complexity and multiple perspectives historically associated with the concept have made theoretical and research advances difficult (Reeves and Bednar, 1994). Empirical studies identify core quality practices that included top management support, quality information, process management, product design, workforce management, supplier involvement and buyer orientation (Flynn et al., 1994; Black and Porter, 1996). There have been very few empirical studies of the effects of contingency variables on the relationship between quality practices and quality performance. High levels of front-line employee performance and interdepartmental buyer orientation have a positive effect on distribution center service and supply chain performance (Voss et al, 2005).

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