As in any human relationship, the connection between buyer and supplier tends to be complicated. In even the most transactional purchase of a commodity, all kinds of considerations may play a role.

How does one vendor manage to become a trusted partner while another struggles again and again to win business? In a recent study, Evelyne Vanpoucke, an Associate Professor at Solvay Brussels School of Economics and Management, Brussels, Ann Vereecke of Vlerick Business School in Ghent, Belgium, and Kenneth Boyer of the Ohio University’s Fisher College of Business, analyzed the evolution of six long-term business relationships and found that vendor relationships pass through three distinct stages before they reach the highest level of trust.

The researchers looked at 100 different buy-sell relationships, identified 25 long-term relationships, and picked six of those that were from different industries and for which the buyer and supplier agreed to supply the necessary information about the history of their connection.

A BUSINESS RELATIONSHIP IS A SOCIAL RELATIONSHIP
Despite the degree to which production is now automated or involves an electronic data exchange, the researchers found that business remains an intensely social activity. In the six relationships studied, buyers and sellers all required a lot of ongoing effort and direct communication. In each of these cases, researchers found that the buyer-supplier relationship had typically passed through three stages:

Exploration: Buyer and vendor are working together but have no long-term contract. In the exploration stage, contract and price negotiations tend to dominate discussions. Cost savings tend to be the predominant concern.

Expansion: At an inflection point after a high level of trust is reached, the conversation turns to joint projects. The two parties see an opportunity that they can face together more profitably or efficiently than either could on its own. A common risk may also act as a spur to joint action.

Commitment: Buyer and seller reach a level of interdependence. In this third stage, they begin making multiple shared investments and to begin thinking about ways to add value beyond addressing cost-related concerns. Interestingly, although the pair might cultivate some informal contacts, structure remains important. Good long-term partnerships typically include annual contracts, audits, and formal meetings.

As with relationships between individuals, each of the six relationships studied developed at its own pace. Time matters: all these relationships took more than a decade to develop. However, events rather than raw chronological time tend to define the stages. In the beginning, the relationships all developed in a linear way. Later, after buyer and seller have worked together for a period, the contact between them tends to become much more cyclical.

Deepening the relationship requires continuous effort at any stage, but the focus of that effort changes over time. In the beginning of the relationship, trust is the critical factor to cultivate. Later, interdependence is key, as the partners share knowledge and resources. The authors of this study speculated that just as companies reach a stage of maturity at which they need to identify new business ideas in order to continue to grow, buyer-supplier partnerships also reach a stage where they are looking for new opportunities to expand. The researchers found that although trust tends to be critical for expansion, interdependence is the factor that triggers a longer-term commitment.

On the other hand, some fundamental things do seem to apply to the entire relationship. Researchers found that irrespective of the depth of the partnership, the research suggested that governance mechanisms remain important. Although informal mechanisms grow more popular in the commitment stage, partners don’t abandon formal structures, such as annual contracts and quarterly meetings.

CONCLUSION
In the end, inter-organizational business relationships are a special kind of human relationship, and they operate by many of the same rules. They begin with a shared vision that each party would be better off with the other than alone, deepen as both parties learn to trust each other, and sometimes continue to evolve as the parties undertake a series of joint projects. Just as for people who start out going out for a coffee, advance to dinners, and then one day find themselves marrying, buying a house together, and raising a family, such deep relationships can have a transformative impact. Not every business relationship needs to develop to this level, but given the potential outsize benefits, those that have the prospect of doing so should be treated with care.

1Triggers and patterns of integration initiatives in successful buyer-supplier relationships, Evelyne Vanpoucke, Ann Vereecke, Kenneth K. Boyer, Journal of Operations Management 32 (2014), pp. 15-33.

Kenneth Boyer is Chairman of the Department of Management Sciences and Dean’s Distinguished Professor of Operations Management at the Fisher College of Business at the Ohio State University. Evelyne Vanpoucke is an associate professor of operations management at Solvay Brussels School of Economics and Management, Brussels. Ann Vereecke is Professor of Operations Management, Vlerick Business School in Gent, Belgium. This study formed part of Dr. Vanpoucke’s doctoral thesis.

Kenneth Boyer Dean's Distinguished Professor of Operations Management
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