November 21, 2016 Buyer beware: bad behavior damages trust in buyer-supplier relationships

Every buyer-supplier relationship is governed by some hard and fast measures — quality, speed of delivery, price, compliance to customer specifications and government regulations, etc.

These measures are often covered in written contracts. But metrics alone don’t define critical factors that can, overtime, damage a buyer-supplier relationship. There also exist mutual beliefs, perceptions, and informal obligations between a buyer and supplier. These less-defined soft criteria form a psychological contract among buyers and suppliers, and violating that contract alters the level of trust between the parties.

Buyer-supplier relationships and buyer behaviors in those bonds vary widely. At one extreme are cooperative companies that share knowledge, improvement practices, methods, and tools, with intent to continuously and collectively reduce the costs of both parties. The buyer-supplier relationship exhibits collaborative behaviors.

At the other extreme are one-sided buyer-supplier relationships, unilateral structures to which many suppliers today are subjected. In these relationships, buyers often use confrontational and/or unscrupulous tactics to gain advantages; mislead their supplier in negotiations in order to gain more favorable contract terms; and demand cost reductions, potentially harming the viability of the supplier. These unhealthy buyer-supplier relationships are characterized by adversarial behaviors.

Good buyer behaviors and their effects on the buyer-supplier relationship have been well-documented. Bad behaviors and their impact to the buyer-supplier relationship have received less attention, but they certainly deserve more considering the ramifications of those actions. First, there is a causal relationship between unethical behaviors by a buyer and a supplier’s perception of trust in the buyer. A supplier scorned takes quick action that can impair the relationship. Second, unethical behavior violates the psychological contract, which influences supplier trust in the buyer going forward. The buyer’s bad behavior may not directly turn to distrust, but it is not forgotten. 

Our research at The Ohio State University and published in the Journal of Operations Management examined this relationship of adversarial and/or unethical behavior by a buyer (both subtle and deceitful tactics) with psychological contract violations and, subsequently, a supplier’s trust in the buyer (benevolence and dependability). We also looked at the role of bounded ethicality in the buyer-supplier relationship — how unethical behavior may be ignored but eventually emerge because the psychological contract has been violated. 

We proposed and tested a research model with 110 small- and medium-sized businesses, 58 that primarily supplied a product and 52 that primarily supplied a service. We asked suppliers to only consider buyers with which they had had a relationship for five years or more. Our model introduced a psychological contract violation as a contributor to distrust (a mediating variable between ethics and trust). The research confirmed three ways by which ethics, the psychological contract, and trust interact in a buyer-sell relationship: 

1. SOME UNETHICAL BUYER BEHAVIORS USUALLY (BUT NOT ALWAYS) DIRECTLY AND NEGATIVELY AFFECT A SUPPLIER.
When a buyer behaves badly, there is often immediate damage to a supplier’s willingness to trust the buyer. The supplier might voice negative feelings to others in the industry. If the supplier is in the power position, the supplier might look to exit the relationship. Either response can hurt the buyer.

Sometimes unethical behaviors will not immediately affect suppliers. An unethical action might be considered to serve the supplier’s interests, or the supplier will turn a cheek because it’s the first instance of such behavior. Some business executives will reason that it’s all “the cost of doing business.” 

2. UNETHICAL BUYER BEHAVIORS ARE PERCEIVED AS A PSYCHOLOGICAL CONTRACT VIOLATION BY SUPPLIERS.
A buyer’s adversarial or unethical behaviors — subtle (e.g., writing specifications that favor one supplier over another) or deceitful (e.g., purposely misleads the supplier in negotiations) — may not necessarily result in immediate harm to the relationship. The supplier and staff may feel angry, frustrated, and even cheated, but they’re not always going to tear apart the relationship at that moment. 

But when a buyer reneges on a contract obligation, for example, the information about the unethical behavior is not forgotten — consciously or subconsciously it is filed away by the supplier and affects the psychological contract. Fool me once, shame on you. Fool me twice, shame on me. It’s important to note that just the perception of unethical behavior — even where none exists — can impact the psychological contract.

3. PERCEIVED PSYCHOLOGICAL CONTRACT VIOLATIONS CONTRIBUTE TO A SUPPLIER’S MISTRUST IN THE BUYER AND NEGATIVELY AFFECT THE OVERALL BUYER-SUPPLIER RELATIONSHIP. 
A damaged psychological contract is a debit that suppliers are merely waiting to repay. The two forms of unethical behavior we studied (subtle and deceitful), however, do not similarly affect the two forms of trust in the buyer (dependability and benevolence): 

  • Subtle unethical behavior—buyer dependability: The psychological contract violation holds memory of subtle actions and it eventually affects the supplier’s perception of buyer dependability. The supplier questions the reliability of the buyer.
  • Subtle unethical behavior—buyer benevolence: The contract violation influences a supplier’s perception of buyer benevolence, and the supplier loses a sense of shared moral values with the buyer that may have existed. 
  • Deceitful unethical behavior—buyer dependability: The contract violation turns the supplier’s radar to high alert. The supplier expects the buyer to act in similar bad ways again and is unwilling to rely on the buyer.
  • Deceitful unethical behavior—buyer benevolence: This was the surprising discovery of our research. This contract violation influences a supplier’s perception of buyer benevolence only in a long-standing relationship and only via the psychological contract — there is not a causal reaction. Possibly the supplier in a nascent relationship expects the worse from the start, and benevolence has not yet been established.

Few in business should be surprised by the interactions between unethical behavior and trust within buyer-supplier relationships, or that buyer misbehavior can impact supplier trust. Managers have to realize, however, that it is not only the actions of the firms’ representatives that matter but the perceptions maintained by the partner firm that drive frustrations and feelings of psychological contract violation. Our research also shows that it’s not always quid pro quo; a reaction is likely to occur some day, some how, and buyers should expect to get their due. The lesson to be learned is that buyers should be more attuned to how their actions are perceived by suppliers, even if they believe they got away with something. Only buyers on their best behavior — minimizing or eliminating adversarial and unethical behaviors or perceptions of them — build strong buyer-supplier partnerships.

1 James Hill, Stephanie Eckerd, Darryl Wilson, and Bertie Greer, “The effect of unethical behavior on trust in buyer-supplier relationship: The mediating role of psychological contract violation,” Journal of Operations Management, Volume 27, 2009. 

James Hill Center for Operational Excellence (COE)
Faculty Profile