What does it take to make the most of supplier relationships?

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Research paper

What does it take to make the most of supplier relationships? Lars-Erik Gaddea, Ivan Snehotab, a b

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Chalmers University of Technology, SE-412 96 Gothenburg, Sweden Universita’ della Svizzera italiana, Via G. Buffi 13, CH-6900 Lugano, Switzerland

A R T I C LE I N FO

A B S T R A C T

Keywords: Purchasing management Supplier relationships Supply networks Organising purchasing

The supply context of companies has changed substantially during the past two decades because of outsourcing, globalisation and digitalisation, and through growing concern for sustainability and public procurement. These changes, combined with recognition of the potential benefits to be derived from more extensive involvement with suppliers, have made the task of purchasing and supply management broader and more complex. This paper's aim is to examine how the evolving supply context affects the scope of purchasing and supply management and what the consequences for management are. We argue that effective use of supplier relationships involves three main issues – interacting in supplier relationships, dealing with supply network interdependences and handling dynamic changes in the supply context. Coping with these matters requires: (i) conceptual tools that support monitoring and sense-making of what is on-going at the supply side of the firm; (ii) the individual and organisational skills and capabilities required to develop workable solutions; and (iii) organisational arrangements to support the development of these solutions.

1. Introduction In 2000 we published in this journal a paper entitled “Making the most of supplier relationships” (Gadde & Snehota, 2000). The IMM editors have now invited a retrospective sequel to that paper and a discussion of possible future developments on the topic. The field of purchasing and supply management has evolved considerably after 2000, because of its contributions to the overall performance of companies. This evolution is illustrated in several comprehensive reviews, for example, Giunipero, Hooker, Joseph-Matthews, Yoon, and Brudvig (2008), Spina, Caniato, Luzzini, and Ronchi (2013), and Mogre, Lindgreen, and Hingley (2017). The overall purpose of this paper is to discuss and interpret these developments in relation to the issues we have raised in our paper from 2000. Consequently, we begin by presenting the main ideas in the 2000 paper and continue by briefly summarizing the salient trends in purchasing practices and research during the past two decades. Having explored these trends it becomes evident that companies are increasingly aware of the potential benefits from making better use of supplier relationships. Therefore, the issue on the management agenda today is not whether or not to increasingly rely on suppliers and their resources – but how to make the most of supplier relationships in the current business context. In 2000 we anticipated some of these issues and offered a few conjectures regarding how to reap potential benefits from

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supplier relationships. In the current paper we provide a more systematic discussion of the means and the consequences related to this strategic approach. In conclusion, we argue that exploiting the potential of supplier relationships in today's business context requires addressing issues related to: (i) the interaction between buyer and supplier; (ii) the embeddedness of single relationships in the business network, and (iii) the dynamics of supplier relationships. Upon exploring the three themes, we consider the managerial consequences of making the most of supplier relationships and discuss future research. 2. The 2000 paper The motivation behind the 2000 paper was a changing view of what should constitute appropriate relationships with suppliers. Traditionally, the purchasing management literature has recommended that buying firms avoid their dependence on individual suppliers and keep them at arm's-length conditions, which was assumed to provide opportunities for switching among potential counterparts and thus preventing the buying firm from negative lock-in effects. In the decade before 2000, this view of the appropriate posture of relationships with suppliers was changing and arguments illustrating potential benefits from close relationships and partnerships were emerging (e.g., Davis, 1993; Lewis, 1995).

Corresponding author. E-mail addresses: [email protected] (L.-E. Gadde), [email protected] (I. Snehota).

https://doi.org/10.1016/j.indmarman.2019.07.003 Received 19 December 2018; Received in revised form 19 May 2019; Accepted 10 July 2019 0019-8501/ © 2019 Elsevier Inc. All rights reserved.

Please cite this article as: Lars-Erik Gadde and Ivan Snehota, Industrial Marketing Management, https://doi.org/10.1016/j.indmarman.2019.07.003

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This tendency to outsource and offshore not only infers that businesses are buying more from suppliers, but also that increasing attention has been paid to system sourcing, which also implies purchasing more complex packages of adapted solutions, rather than sourcing of given products (Gadde & Jellbo, 2002). The growing globalisation of sourcing markets brought about the necessity to bridge both the physical and cultural distance to suppliers. However, early benefits from low-cost country sourcing have been reduced by increasing labour costs in these countries, and various hidden costs related to offshoring have been discovered. Therefore, attention to offshoring has been supplemented with a strong interest in ‘reshoring’ through sourcing from markets closer to the home base and customers (Fratocchi et al., 2016). E-purchasing and the deployment of various digital solutions in purchasing improved communication with suppliers, which led to the use of new coordination tools and opened the way for reaping the benefits of potential cost efficiencies (Garcia-Dastugue & Lambert, 2003). Two other purchasing trends are also often highlighted: the growing importance of social responsibility and sustainability issues in purchasing and supply management (Johnsen, Howard, & Miemczyk, 2014; Miemczyk, Johnsen, & Macquet, 2012) and increasing attention to public procurement, which is growing in importance and has some distinctive features (Stentoft & Freytag, 2012; Thai, 2009). Such changes in the context had a considerable effect on purchasing practices. Outsourcing and globalisation may contribute to the effectiveness of some purchasing operations, but at the same time, they make purchasing more complex. Similarly, social responsibility and sustainability concerns increase the requirements for skills and capabilities. E-purchasing eased some of these issues, but overall purchasing and supply management today is more difficult, not least because of prevailing uncertainties (Paulraj & Chen, 2007; Simangunsong, Hendry, & Stevenson, 2012). The evolution on the supply side of companies made purchasing increasingly strategic, and an issue for top management, since the function contributes not only to the bottom line of company results, but also to the top line (Chen, Paulraj, & Lado, 2004; Zheng, Knight, Harland, Humby, & James, 2007). One consequence of this enhanced significance of supply management is that purchasing operations nowadays are seldom managed by a single company function. The changing context implies an increasing integration of purchasing and supply management with other functions, such as strategy, marketing, product design, and supply chain management. Therefore, it has been argued that “twenty-first century purchasing … is evolving into a cross-functional business process” (Mogre et al., 2017, p.251). In the complex contemporary business landscape, purchasing and suppliers have major roles to play. One of the most influential academics in the field argued a few years ago that “purchasing and supply management … represent a business area of still unknown potential for companies” (Van Weele, 2014, p. xvi). Other authors have shown that supply management can have far-reaching effects on cost efficiency, development potential and strategic positioning of the buying company (Gadde, Håkansson, & Persson, 2010). However, reaping the full benefits of making the most of supplier relationships in the changing context of purchasing is not simple, as such efforts entail rather intricate changes in managing the supply side of businesses. The growing complexity of the context implies more multifaceted tasks for management (Spring & Araujo, 2014). Making more extensive use of supplier relationships is bound to require a better understanding of the changing context and the associated managerial issues. These conditions, in turn, open the way for future research that can contribute to the development of concepts and analytical tools to frame more effectively the key issues that contemporary purchasing and supply management must tackle. This paper's aim is to explore the central issues that need to be addressed when attempting to make the most of supplier relationships. The point of departure for this discussion is to return to our 2000 paper.

Based on an analysis of costs and benefits of supplier relationships, we argued that companies can reap significant advantages from exploiting their relationships with suppliers not only to achieve low cost of purchasing, but more extensively. Analysing the trade-off between benefits and costs, we distinguished two types of relationships: high involvement relationships requiring substantial investments to generate potential benefits, and low involvement relationships that provided less benefits, but also entailed lower (direct) costs. The prevailing view at the time was that closeness and high involvement should be pursued in relationships with suppliers that accounted for major volumes of business. Furthermore, it was argued that high involvement should be combined with single sourcing, and a long-term approach, while low involvement was considered appropriate in relationships featuring minor business volumes, in combination with multiple sourcing and a short-term perspective. We challenged this stereotype and argued for a more nuanced view of the level of involvement with suppliers. We proposed that low involvement could make sense even in relations with suppliers of large volumes, since this approach entails low costs, but also that low involvement could well be combined with a long-term perspective and single sourcing in efforts to reduce costs. Similarly, we argued that high involvement may be an effective approach in relationships with lowvolume suppliers when the relationship can offer other benefits, for example in terms of technological development and innovation. We also noted that high involvement does not necessarily require single sourcing and, for specific reasons, can be applied also in a short-term perspective. Consequently, the main conclusion of the paper was that differentiation and variety in relationship involvement are crucial for making the most of supplier relationships. We also posited that the shift in focus toward managing relationships rather than discrete transactions would involve “recognizing the link there is between the supply management and the overall business strategy of the company”, and that “[M]ore complex and subtle issues than normally associated with purchasing management will face the management when the ambition becomes to make the most of supplier relationships” (Gadde & Snehota, 2000, p. 316). These quotes provide the background for this paper, which examines the managerial challenges of making the most of supplier relationships in the current context on the supply side of companies. 3. What happened on the supply side of companies after 2000? Since 2000, on the supply side of firms the focus, both in business practice and research, has shifted conspicuously from ‘buying well’ toward ‘making the most of supplier relationships’. The benefits of making better use of suppliers became widely acknowledged and pursued, and, in practice, ‘purchasing’ has actually become more and more ‘supply management’. Research findings confirm this evolution. Terpend, Tyler, Krause, and Handfield (2008), conducted a literature review and found that the number of papers on buyer-supplier relationships more than tripled over 20 years. They concluded that the focus on the supply side had changed from ‘buyer practices’ to ‘buyersupplier relationship practices’. The ambition of businesses to better exploit supplier relationships brought about noteworthy changes in their approaches to suppliers, changes that have been compounded by on-going developments in the context of purchasing and supply management. In the literature reviews of purchasing and supply management mentioned in the Introduction there are different interpretations of the changes in the context, as well as their causes and effects. For the discussion in this section we rely on the analysis by Spina et al. (2013), who identify three major trends impacting supply management: increasing outsourcing, increasing globalisation and the growing importance of e-purchasing. In general, pursuing the benefits of specialisation over the past two decades, businesses have tended to outsource more and more of their operations (Ashby, 2016; Stentoft, Olhager, Heikkilä, & Thoms, 2016). 2

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4. Some echoes from the 2000 paper

the supplier base regarding knowledge, capabilities and innovation as an important research topic. The authors advocated a network approach to ensure that structural embeddedness receives due attention in purchasing and supply management research. This stance was taken because “manufacturing firms are increasingly taking a network perspective” (ibid. p. 8). Overall, research shows that the development of single business relationships depends on ‘related’ relationships, which emphasises that changes of relationship involvement reflect existing interdependences, but, at the same time, relationship developments tend to create new interdependences (Freytag, Gadde, & Harrison, 2017). Although the notion of supply networks firmly entered the research on supply management around 2000, the implications of these interdependences on purchasing practices remain less explored. Thus, the second issue related to making better use of supplier relationships is coping with network interdependences. Thirdly, in the 2000 paper, we analysed relationship involvement in a largely static perspective, with scant attention to changes in the level of involvement over time. However, we noted and stressed the dynamics of involvement, positing that “the prevailing degree of involvement characterising a relationship must never be considered a permanent solution” (p. 314), since the supply side features change continually. We argued that adapting the level of involvement to changing supply network conditions is a most critical issue in supply management. Narayandas and Rangan (2004) and Palmatier, Houston, Dant, and Grewal (2013) support the significant role of relationship dynamics. They claim that understanding relationship and network developments requires dynamic analysis and suggest that mainstream research based on static conceptualisations of relationship states needs to be complemented by studies on relationship development. We find the dynamics of relationships and networks to be the third major issue in making the most of supplier relationships and that this theme should be explored further. Compared to 2000, we observe that the contemporary context and practices of purchasing and supply management have evolved considerably. Potential benefits of supplier relationships are readily acknowledged, and the crucial issues to exploit these opportunities are now: how to cope with interaction processes in these relationships, network interdependencies and supplier relationship dynamics. We find, therefore, that better insight on these issues is a necessary condition and a priority when striving to make the most of supplier relationships.

The 2000 paper showed that variety in relationship involvement could produce various types of benefits (and costs) to the buying firm. Our analysis was restricted primarily to the end-points of the level of involvement (high vs. low) in supplier relationships. Since 2000 several authors have presented more fine-tuned conceptualisations of relationship involvement than the simplifying high-low dichotomy. For example, Rinehart, Eckert, Handfield, Page, and Atkin (2004) identified seven forms of relationship involvement, ranging from non-strategic relationships to alliances. Referring to relationships in the service industries, Laing and Lian (2005) found five “ideal-type formats” stretching from elementary relationships to integration. Duffy (2008) also argued for the relevance of applying intermediate forms between the polar aspects of the relationship continuum, and that such conceptualisation involves three degrees of coordination in-between market transaction and integration. The framing of variety in relationship involvement takes other forms as well. Donaldson and O'Toole (2000) developed a 2 × 2 matrix for analysis of relationship strength, ranging from opportunistic to bilateral. Tangpong, Michalisin, and Melcher (2008) applied a similar matrix based on the degree of ‘relationalism’ and the degree of dependence, where low-low in the two dimensions was characterised as market exchange and high-high as a ‘constrained link’, implying dependence between the parties and limited influence from the outside. Vesalainen and Kohtamäki (2015) challenged the traditional unidimensional relationship continuum and developed a typology for buyer-supplier relationships based on three dimensions: structural, economic and social. In their empirical study, they found eight different relationship configurations in the interplay between the three dimensions. Some of these configurations are well in line with established typologies: transactional, intermediate and partnerships, while others fall outside this continuum: social, balanced, unbalanced, enabling and structural. Finally, Araujo, Gadde, and Dubois (2016) proposed a categorisation of buyer-supplier relationships based on the interfaces between the resources of the two parties, distinguishing between standardised, specified, translational and interactive interfaces. So, one echo of the 2000 paper is that the conceptualisation of buyer-supplier involvement has been refined to include several intermediate categories of relationship involvement between the end-points of low and high. However, neither our 2000 paper nor studies proposing the more nuanced relationship typologies, have dealt with the actual characteristics and management implications of the various forms of relationship involvement. In the 2000 paper, we suggested that involvement is linked to different patterns and the intensity of interactions. We noted that “some relationships require lots of interaction” (p. 308) and those high involvement relationships involve “extensive and intensive interpersonal interaction” (p. 315). Terpend et al. (2008) asked for more research on interaction, since their literature review indicated that information sharing, communication and trust significantly affected operational performance, as well as the buyer's competitive position in relation to suppliers. These conditions imply that examining how to make the most of supplier relationships requires an exploration of interaction processes, and how these processes affect the nature and outcomes of interorganisational relationships. Interaction in supplier relationships is thus the first theme we examine in this paper. The second theme springs from the fact that in the 2000 paper we focused on the features and economies of single supplier relationships. Our analysis stayed at the single relationship level, even though we remarked that “each relationship is interdependent with a number of other relationships, together forming a network” (p. 315). We concluded that if we are to understand the interactive nature of buyersupplier relationships, the scope of analysis must be broadened to include network effects. Schoenherr et al. (2012), exploring research opportunities in purchasing and supply management, reached the same conclusions and proposed the identification of best practices to exploit

5. Interacting in buyer-supplier relationships In the 2000 paper we argued that the level of involvement between buyer and supplier can be described in terms of links between their activities, ties between their resources and bonds between the actors, in line with Håkansson and Snehota (1995). Such features of buyer-supplier collaboration are result of coordinated interaction (e.g. Le Dain, Calvi, & Cheriti, 2010; Petersen, Handfield, & Ragatz, 2005). There is a tendency in the mainstream literature to assume that one of the parties can, and should, control the interaction and determine the pattern of interactions (e.g. Sobrero & Roberts, 2002). We tend to disagree on this point and side with research noting that exploiting the resources of the counterpart requires all-encompassing integration based on joint, rather than unilateral, process coordination (Håkansson, Ford, Gadde, Snehota, & Waluszewski, 2009; Inemek & Matthyssens, 2013). This research stream argues that too much control should be avoided since unilateral control can constrain the opportunities for interacting and thus hinder the supplier from utilising its resources in the best way. Furthermore, Brito & Miguel (2017, p. 84) recommend that buying firms relax their control ambitions to better exploit interfirm interaction “as a source for learning and for the development of new capabilities”. This alternative perspective implies that the actual posture of a buyersupplier relationship is ‘mutually interacted’ rather than unilaterally controlled or imposed, and that the features of a relationship result 3

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resources through collaborative relationships is costly, because substantial investments in joint solutions are needed. These efforts and costs are anticipated with respect to the possible benefits that may, but not necessarily will, materialise in time (Håkansson & Snehota, 2017). Acknowledging the role of relationship interacting requires going beyond black-boxing of the interaction processes in supplier relationships typical of the mainstream literature. The centrality of interacting when developing and maintaining supplier relationships requires a shift of focus away from considering simply the level of relationship involvement toward the modes and processes of interacting. The emphasis should rather be on the prerequisites for interacting since these conditions may constrain or enable effective development and utilisation of supplier relationships. As shown by Tuli, Kohli, and Bharadwaj (2007) the configuration of the organisational interfaces affects the features of the solutions exchanged in buyer-supplier relationships. Buying firms need to focus on the interfaces with suppliers and the processes and platforms that support interacting between the buyer and supplier organisations (Araujo et al., 2016). Araujo et al. (2016) emphasise the importance of the two parties' interactive capacity and interactive capability for relationship outcomes. Interactive capacity can be represented by the amount of time devoted to interacting, as well as the number of persons and other resources involved in the processes. Interactive capability relates to the accumulated skills, knowledge and experience gained through previous interactions. Both the capacity and capability for interacting in a specific relationship are always contingent on the two parties' other relationships in the network.

from how managers in the two organisations frame and interpret the possibilities and limitations for collaboration. From the supplier perspective, the belief that collaborative relationships are conditional on mutual and shared understanding among managers in the companies involved is a well-established fact, documented in several studies on key account management (e.g. Cheverton, 2012; Gounaris & Tzempelikos, 2014; McDonald, Millman, & Rogers, 1997). Moreover, research taking the buyer perspective suggests that “if the buying organizations want to get more out of the suppliers … they have to engage in extensive interaction” (Gadde & Wynstra, 2017, p. 67). Interacting is important for both parties to identify potential opportunities and implement actual solutions. Furthermore, interacting is vital when it comes to handling the impact of the environment on the relationship. For example, Ellram and Krause (2014), analysing how the economic downturn of 2008–2009 affected buyer-supplier relationships, found that relationships featuring frequent and deep interaction were more robust and mainly continued as before, while some of the relationships scoring lower on interaction intensity tended to deteriorate. The explanation the authors advanced was that prevailing interdependencies in the highly interactive relationships implied that the two parties' ‘fates are linked’. Interacting is required, especially when both parties pursue benefits that go beyond cost-efficient supply solutions. In these situations, rationalisation efforts in purchasing and supply management are complemented or substituted by attempts to broaden and enhance relationship benefits. In such efforts, Ulaga and Eggert (2006) claim that “relationship benefits display stronger potential for differentiation than do cost considerations” (p.131). The perception regarding relational benefits has changed over time. Terpend et al. (2008) analysed the evolution of the value buying firms searched for from their suppliers in the period 1986–2005. They found that the initial focus on value from operational performance was supplemented over time by ‘integrationbased’ value and finally ‘supplier capability-based’ value. Reaping broader benefits is challenging because neither the potential advantages nor the necessary relational arrangements can be fully anticipated, and uncertainty is present in any attempt to make the most of supplier relationships. Under such circumstances, buying firms tend to apply one of two strategies: either they act to avoid uncertainty, or they apply methods for coping with uncertainty (Simangunsong et al., 2012). In both cases, the means of dealing with uncertainty is interaction. Siding with Terpend et al. (2008), we argue that interaction in terms of communication and information exchange is critical to the wellfunctioning interaction required to make the most of supplier relationships. Transparency regarding crucial information is necessary, as is an open mind in dialogues and discussions. Organisational arrangements have significant effects on interaction processes. Ellegaard and Koch (2012) found that mobilisation of supplier resources sometimes tended to fail when buying firms internally were inadequately organised and prepared, and therefore did not fully understand suppliers, which prevented them from engaging in meaningful joint problemsolving and development activities with their suppliers. In a similar vein, Piercy (2009) noted that strategic external relationships must be mirrored in strategic internal relationships. The beneficial collaborative solutions that can lead to developmental effects are created jointly by the two parties. They result from productive interaction and cannot be achieved without “joint action” (Håkansson & Snehota, 2017). Several studies over the past decade have shown that coping with interactive processes requires acknowledging and accepting three properties and effects of the relational interaction: First, developing effective relationships cannot be achieved unilaterally, but requires substantial interaction between two committed and active parties. Second, developing supplier relationships in pursuit of benefits from developmental and structuring effects leads to mutual dependences and entails giving up some autonomy as a trade-off for achieving such benefits. Third, interaction to exploit supplier

6. Network interdependencies Interactive processes in a buyer-supplier relationship do not take place in isolation. They are affected by interactive processes elsewhere in the network, some of which involve one of the two parties with subsequent impact on the focal relationship and on the interaction between other organisations without a direct connection to the parties. Such influences change the conditions for the focal interaction due to indirect network effects, for example, through a sub-supplier of the buying firm. These changes in the network spread through the focal buyer's customers and other suppliers, as well as through the focal supplier's suppliers and other buyers. These effects arise because of network interdependencies created through mutual adaptations of resources and activities, such as customised products, integrated service solutions, or synchronized logistics arrangements. The more intense the interacting, and the higher the involvement of the firms – the stronger the evolving interdependencies become (Freytag et al., 2017). Network interdependencies come to the fore when we broaden the perspective from purchasing given products and services to acquiring solutions that involve exploiting the potential of supplier relationships more extensively. The foremost network impact regards the fact that what a supplier can do for a buyer is largely dependent on the supplier's other relationships (Håkansson et al., 2009). Capturing potential benefits from the focal relationship may therefore require a buying firm to interact with some of the other business partners of the supplier. Another implication is that the buyer should avoid demanding individualised solutions that differ considerably from those of the other customers of the supplier; as such requests can constrain the supplier's potential for using its resources in the most appropriate way and thus deteriorate the economies of scale (Araujo et al., 2016). In truly interactive relationships such problems are less likely to occur, since the parties tend to be better informed about their respective features and conditions. Another significant interdependence regards the connections between firms in the buyer's supplier base. The traditional approach to purchasing given products and services has been to encourage competition between suppliers to generate value through reduced costs and avoid dependence on individual suppliers. Such tactics build on the 4

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oriented logic, involving ‘supplier-buyer-buyer's customer’ to stimulate connections between the parties on the two sides of the buying firm. Another approach would be to explore the triadic relationship ‘buyersupplier-supplier's supplier’ to extend the buying firm's knowledge of the supplier's network context. Triadic analysis improves the understanding of how one linkage in the network is affected by what is on-going in other linkages. Therefore, we agree with Choi and Wu (2009) when they claim “it is not the dyad but the triad that is the fundamental building block of the network”. Madhavan, Gnyawali & He (2004, p. 918) have expressed similar thoughts, arguing that triads are important elements in the context “within which dyads interconnect to form overall network structures”. Including a third actor in the analysis of a specific relationship substantially expands the opportunities for innovative integrating of activities, combining of resources, and interacting with actors. The main consequence of exploring triadic relationships is that the number of potential indirect interactions increases, as do the opportunities for renewal and innovation by exploiting relationship and network dynamics.

assumption that competing suppliers offer the ‘same’ (comparable) standard product and service packages. When purchasing attention is directed toward development effects, the focus needs to shift to stimulating cooperation between suppliers and how the resources in different supplier relationships can be combined (Gadde et al., 2010). In these situations, buying firms increasingly rely on suppliers specialising in particular products and services that, combined with others, provide the buyer with solutions of value that are often relationship specific. The specialised solution in relation to one supplier needs to be integrated with those emerging in the relationships with other suppliers. Because of prevailing interdependencies, any modification and enhancement of such solutions require the coordinated undertaking of several business partners that complement each other (Ford, Mattsson and Snehota, 2017). Also, regarding rationalisation efforts, the buying firm can gain substantially by stimulating joint actions among suppliers, for example with regard to systems for information exchange, administrative routines or delivery arrangements. Owing to extensive outsourcing, buying firms are increasingly dependent on the resources available in the supplier base. Making the most of supplier relationships is thus about exploiting network effects by mobilising assorted supplier relationships. This is a crucial condition for the effective utilisation of supplier resources in the short term, as well as in a long-term perspective. Since many companies will approach a knowledgeable supplier, the buying firm must establish itself as a priority for the supplier – to become a preferred customer (Schiele, 2012). The level of priority determines what resources the supplier will devote to the specific relationship and what learning can take place through their knowledge exchange. Two types of learning are at hand in a supplier relationship: the direct learning effects attained in interactions between the two parties, and the indirect effects stemming from what the buyer and supplier learn in their other relationships (Araujo et al., 2016). Promoting these learning effects requires well-functioning couplings between external and internal organising. The supplier base is the most significant knowledge reservoir for the buying firm, as it contains a much more extensive set of resources than the resources available within the own company. Acknowledging the width and depth of this resource base is a challenge to the traditional perspective assuming that the core competence is rooted in a firm's internal resources and that the scope of supply management is to complement the buying company's own resources, as exemplified by Quinn (1999). Our challenging perspective implies that the buying firm should focus on exploiting the resources in the supplier base in the best way, and then organise the own operations and resources as a means to exploit and complement the ‘external’ resources. From such a viewpoint, core competence becomes a capability for relating and networking in the supply network. Even if this perspective is mostly only implied and seldom explicit in purchasing and supply management, this view entails growing concern for network interdependences. Such a change in viewpoint shifts the attention from single individual relationships to sets of relationships in the network, thus in line with recommendations to take a network perspective on supply (e.g., Gadde et al., 2010; Schoenherr et al., 2012). Applying a network view of the supplier base is not simple. Each of the key supplier relationships entails considerable complexity of resource interfaces, activity integration and interaction among the actors. This complexity is compounded when we consider the entire supply base, including interdependencies between the suppliers and in their relationships with other business partners. While several concepts and frameworks are available for analysis of dyadic relationships, conceptual frameworks for analysis at the network level are scarce. The first step toward network framing is to extend the analysis from the dyadic to the triadic level. Triadic analysis can take different forms. One approach is to analyse the three connected relationships between one buyer and two suppliers with the aim of identifying and developing direct links between the suppliers, as suggested by Wu, Choi, and Rungtusanatham (2010). Other forms could build on a supply chain-

7. Dynamics of supplier relationships and networks Few practitioners and researchers would contest the claim that relentless change is an inherent feature of business relationships and networks. Some changes originate within a relationship, often as a consequence of addressing a problem or attempting to develop a more advantageous solution. Other changes have origins external to the relationship, when events elsewhere in the supply network generate change that affects the focal supplier relationship. While both supplier and buyer often aim to maintain a steady state in relationships and relational arrangements, in reality, periods without change are exceptional, and the need to cope with change is constant. Whatever the cause of change, supplier relationships and networks are only temporarily stabilised, and will change again soon. Therefore, it is important to accept these dynamics of supplier relationships and networks in purchasing and supply management. Several studies have concluded that research linking performance outcomes to structural features of supplier relationships yields mixed results, and that performance outcomes are better explained from the dynamics in supply networks, network effects, and interactions in supplier relationships (Palmatier et al., 2013; Vanpoucke, Vereecke, & Boyer, 2014). Network dynamics can originate, for instance, from changes in the needs and requirements of the buying firm, which may demand that other resources of the supplier are activated. Other changes are required when suppliers' resources, competences and skills are transformed. The longevity of buyer-supplier relationships identified in research suggests that these dynamics are often handled through mutual adaptations within on-going relationships. Sometimes, however, the dynamics on the two sides of the relationship result in switching from one supplier to another. Owing to network interdependencies, such changes in one relationship will impact other relationships. Despite the evidence of their importance, the dynamics of business relationships and networks are hardly at the centre of research. Indeed, Vanpoucke et al. (2014, p. 5) found that “[w]hile previous studies have focused on the benefits, risks and outcomes of buy-sell relationships, little is known about the dynamics of these relationships”. Narayandas & Rangan (2004, p. 63) arrived at the same conclusion, claiming that there is little empirical research on “the process through which industrial buyer-seller relationships evolve over time”. Rather, the bulk of research on buyer-supplier relationships builds on concepts that are static (Palmatier et al., 2013) and most often focused on a single point in time in a relationship (Jap & Anderson, 2007). At best, studies of the dynamics of relationships tend to present snapshots over time without a processual view (Pfeiffer, 2010). Among the reasons for the limited research on relationship dynamics, the main one is probably the scarcity of analytical conceptual frameworks regarding relationship 5

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frustrated with their performance and commitment. Backhaus and Buschken (1999) and Jap and Anderson (2007) made similar observations, and Håkansson et al. (2009) noted that in some situations buying firms tend to use suppliers they neither like nor trust, simply because they represent the best offerings. Moreover, the exit of a supplier is not necessarily driven by the buyer; sometimes it is the supplier that finds it appropriate to terminate the relationship with the buyer to enable prioritising of other customers. The dynamics of individual relationships are compounded on the network level. When the buying firm appoints a new supplier and the previous one exits the relationship, the supply network is affected. Changes on the supply side of companies appear to gain speed, fuelled by technological development that can result not only in the entry of new suppliers and the exit of existing ones, but also in changing the priorities of buyer and supplier companies. Acknowledging the dynamics of supplier relationships and networks has been shown to be important in specific situations; for instance, regarding the supplier relationships of start-ups and new ventures. Research shows that supplier relationships can play a significant role in the development of a new venture, and that, despite limited economic significance, such a new venture can attract suppliers by serving as a stimulus to innovation (La Rocca, Perna, Snehota, & Ciabuschi, 2017). Bhalla and Terjesen (2013) discuss the benefits provided by the suppliers of a start-up and how these advantages vary, depending on whether they involve relationships with central or peripheral network actors. While the empirical research on positively exploiting the dynamics of supplier relationships and networks is not plentiful, the sporadic evidence suggests that considerable potential benefits can be obtained.

dynamics. Early conceptualisations of relationship dynamics assumed a linear development of a business relationship as a ‘predictable, stable series of stages in a fixed order’ (Dwyer, Schurr, & Oh, 1987; Ford, 1980). They casted the development of business relationships as a gradually increasing involvement based on growing trust and commitment, from an initial phase of a tenuous relationship to one of a (hypothetical) fully developed relationship. An alternative view emerged, arguing that developments of interorganisational relationships are better represented as ‘a continuous iterative cycle of events’ (Ambos & Birkinshaw, 2010; Ring & van de Ven, 1994). This alternative perspective, implying that supplier relationships do not follow a linear sequence with identifiable, desirable and stable ‘end-states’, finds support in recent empirical studies of supplier relationship development over time (e.g., Clauss & Tangpong, 2018; Dubois & Gadde, 2018; Ellram & Krause, 2014; Jap & Anderson, 2007). Overall, recent research on supplier relationship dynamics suggests that coping with change is one of the very central issues in contemporary purchasing and supply management. Vanpoucke et al. (2014), in their review of prior studies, conclude that the development of a relationships is driven by specific events, rather than by time, which is in line with other studies of dynamics of business relationships in general (e.g. Ambos & Birkinshaw, 2010; Håkansson & Waluszewski, 2013). The dynamics of supplier relationships imply coping with change, handling events, originating within or outside the relationship, with the potential to affect the features and development of the relationship. Reviewing several studies dealing with change in supplier relationships, Vanpoucke et al. (2014) conclude that successful handling of buyer-supplier relationships most often tends to be characterised by management practices aimed at various forms of ‘integration initiatives’. Their own framing involves three such integration initiatives: knowledge exchange, logistics responsiveness and the use of common resources. The study shows that successful relationships require continuous effort in terms of new integration initiatives that become broader in scope as the relationships develop. The authors found that both formal and informal governance mechanisms are applied and that, as a relationship matures, the parties tend to rely on more informal governance mechanisms. Critical relationship endogenous events may cause severe tensions and eventually threaten the future of the relationship. In the evaluation of such an event, for example a supplier's delivery failure, a buyer ought to consider not only the actual problem. A more effective approach would be to see the triggering event in a historical perspective reflecting the interaction history and the supplier's previous performance, as well as the expectations of potential benefits from future interaction (Gadde et al., 2010). Such an assessment may result in the termination of the relationship followed by the mobilisation of an alternative supplier. However, an existing supplier relationship often represents a substantial investment. Safeguarding such relationship investments leads Friedl and Wagner (2012) to argue that in some situations where there is dissatisfaction with suppliers, a more favourable solution for the buying firm is to engage in actions aimed at improving the supplier's performance, rather than exiting the relationship. Relational constructs such as trust, commitment and norms are important for relationship development. Palmatier et al. (2013) make an interesting distinction between static and dynamic aspects of such constructs. The static aspect regards conditions at a specific point in time, for example the actual level of commitment, while the dynamic aspect concerns the rate and direction of change in commitment, labelled ‘commitment velocity’. Their study shows that both static and dynamic elements of relationship constructs are important for exchange performance, but commitment velocity is often a stronger predictor of performance than the level of commitment. However, lacking performance or decreasing commitment does not always lead to the disruption of a relationship. Dubois and Gadde (2018) found that a buying firm continued to buy from some suppliers although they were

8. Consequences for purchasing and supply management Looking over what has happened on the supply side of companies since 2000, we found a context characterised by intense interaction in supplier relationships, network interdependences and non-linear relationship dynamics. Under these circumstances, making use of supplier relationships not only to achieve cost efficiencies, but also to obtain developmental effects such as innovation or strategic positioning, implies that the task of purchasing and supply management becomes more complex and demanding (Gadde et al., 2010). The task of management is to interpret and make sense of the context of supply management and to conceive and apply adequate solutions to address various issues as they arise. La Porte (1975, p. 345) describes the problems related to this task: “We must act when we cannot foresee consequences; we must plan when we cannot know; we must organise when we cannot control.” In this final section we argue that successful exploitation of the potential opportunities in relationships with suppliers depends on: (i) conceptual tools that support monitoring and sense-making of what is on-going at the supply side, (ii) the individual and organisational skills and capabilities required to develop workable solutions, and (iii) organisational arrangements to support the development of these solutions. 8.1. Conceptual tools Conceptual frameworks, models and theories of complex realities are important tools for managers in order to translate their perceptions of what is going on at the supply side of companies into effective managerial action. Although practitioners sometimes view new concepts and theories with scepticism, the dictum that “perception without conception is empty” (Blumer, 1969, p. 168), suggests that finding workable solutions depends on effective conceptualisation. Research on purchasing and supply management can contribute to developing frameworks that support managerial action. We need to develop the framings of what is on-going at the supply side that permit capturing interdependences and network effects, and can contribute to a better understanding of factors that shape interaction processes and the 6

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additional skills. When purchasing and supply management is viewed from an interactive perspective, as in this paper, the analysis/planning/ control orientation must be supplemented with attention to the capabilities required for coping with interdependences, interaction and dynamics. In the current relational context of the supply side of companies, reacting to the actions of others appears as equally important as planned action, and ‘joint action’ is essential for exploiting potential relationship benefits. Reacting and joint acting follows other rules and require different skills and capabilities than those of analysing, planning and controlling. We argued above that too much control should be avoided since unilateral control may constrain the supplier's resource utilisation. It is rather evident that in proficuous interorganisational business relationships “control and coordination are accomplished primarily via direct interaction among the actors rather than by hierarchical sub-ordination” (Fjeldstad, Snow, Miles, & Lettl, 2012, p. 739). In the current context on the supply side, the task of purchasing and supply management requires skills and capabilities that allow for coordinating and integrating actions in the absence of hierarchical authority (La Rocca & Snehota, 2014). When managing in supplier relationships, the scope for employing the skills of analysing, planning and controlling is limited. Instead, skills related to joint action and nonhierarchical coordination and, broadly put, interaction capability becomes more important. The skills to mobilise, motivate, experiment and mediate appear crucial in order to exploit the potential of collaborative relationships. Firstly, mobilisation of the resources of suppliers is the main prerequisite for making the most of relationships. Mobilising requires the skill to induce suppliers to prioritise the buying company in comparison with other firms. Secondly, motivating suppliers is essential because they also have to invest in close collaboration and commit the resources necessary for achieving possible relationship benefits. Specific efforts, skills and incentives are needed to encourage suppliers to keep investing in the relationship in order to maintain its performance. Thirdly, sometimes radically innovative efforts are required to enhance performance in a supplier relationship. In these situations, purchasing managers need skills to convince suppliers (and the own organisation) to engage in innovating and experimenting with novel solutions and allocating necessary resources. Fourthly, in high involvement relationships, buyers and suppliers have to compromise their own priorities with the priorities of the counterpart and the relationship. Divergent priorities cause tensions and conflicts between the parties and require skills to mediate controversies. Individual skills and capabilities are important for managerial action in the relational context on the supply side of companies, but the individual skills and capabilities do not translate automatically to the capability of the customer's business at the organisational level. Coping effectively with supplier relationships requires organisational solutions that support, not hinder, managerial action.

dynamics of supplier relationships. Such conceptual frameworks can support management in the interpretation and sense-making of the context of purchasing and supply management. Research intended to develop such frameworks can take as a starting point prior research on interorganisational business relationships, interaction processes, network interdependencies and the dynamics in business markets (see also Sections 5–7 above). First, a broad perspective on interacting in business relationships is provided in Håkansson et al. (2009), who investigate interaction in the three network layers of actors, activities and resources. Håkansson and Ford (2002) present the managerial implications related to “how companies should interact” in various situations. Araujo et al. (2016) discuss the consequences for productivity and innovation due to the variation in patterns of interaction caused by the prevailing interfaces between the resources of buyers and suppliers. Finally, Tuli et al. (2007) identified four relational processes of significance for buying firms' perceptions of a customised solution. Future research can take these conceptualisations further in relation to interacting in supplier relationships. Second, as noted above, most research on supplier relationship dynamics tends to assume that relationships advance through subsequent stages. Since we can easily observe that all supplier relationships are unique and evolve differently, such assumptions are not very useful. We find more promising conceptualisations that rely on the view of relationship development as iterative cycles of events triggered by changing conditions in the relationship and/or its context, as suggested by Ambos and Birkinshaw (2010) and Vanpoucke et al. (2014). We also side with Palmatier et al. (2013) that the dynamic aspects (velocity) of behavioural constructs, such as trust and commitment, are far more important than those emphasising static conditions. Extending our exploration of the dynamics of relationship development and networks is desirable for future research on supply networks. Third, the contemporary business landscape is characterised by interdependences, taking a multitude of forms (Snehota, 2014). Analysing and dealing with interdependences is problematic since practitioners and researchers do “apply limited conceptions to unlimited interdependencies” (La Porte, 1975, p. 353). The more we focus on the role of long-term supplier-customer relationships, the more interdependence comes to the fore as the main factor impacting relationship outcomes and business performance. Searching for benefits through high-involvement supplier relationships implies mutual adaptations that tend to produce further interdependences. Several classic studies discuss the role of interdependence on the firm and relationship levels (e.g., Pfeffer & Salancik, 1978; Thompson, 1967). More recently, Freytag et al. (2017) proposed that interdependences can be identified for each layer of the network in terms of integrated activities, interfacing resources and interacting actors. Interdependencies are significant building blocks in any attempt to exploit relationships. A particular problem is that efforts to reduce one type of interdependence are bound to create other types of interdependencies (Håkansson et al., 2009). The ‘triadic’ perspective in the analysis of business relationships can help to identify relevant interdependences and their impact (Wu et al., 2010). Making the most of supplier relationships requires a better understanding of the ‘relational context’ and therefore identifying and coping with interdependences in supply networks deserves further research.

8.3. Organisational arrangements Organisational arrangements on the supply side represent the means to translate individual skills and capabilities to the firm level and the relationship. Designing appropriate organisational solutions involves three aspects. The first is the ‘internal organising’ in the buying company regarding how the purchasing and supply management unit is related to other functions, such as R&D, product development, manufacturing and sales. Internal organising remains an important issue as purchasing keeps “evolving into a cross-functional business process” (Mogre et al., 2017, p. 251) with potential strategic impacts on the business of the buying firm. The second aspect relates to organising at the interface in a business relationship. The evolution of the context and the purchasing approaches discussed in this paper affect the conditions for inter-organisational arrangements. There is a need for organisational designs that

8.2. Skills and capabilities Exploiting the potential benefits from supplier relationships through managerial action involves developing a set of particular skills and capabilities. Traditionally, managerial action in purchasing tended to be centred on firm-internal procedures involving three steps: analysis, planning and control, in preparing and executing various decisions regarding suppliers. In the contemporary supply side context, characterised by the importance of continuous relationships with their specific mechanisms, managerial action needs to be supported by 7

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follow the principles of “the architecture of collaboration”, which differ rather radically from traditional forms of organising (Fjeldstad et al., 2012). Such design concerns first configuring the interface in the relationship to support organisational actors to engage in collaborative relationships and allow these actors to become aware of problems and opportunities in relation to individual business partners. Second, such organisational solutions must permit joint and collective management of the resources the partners accumulate and share. Third, the organisational solutions should include instruments that enable multi-actor collaboration through infrastructure systems connecting the actors and providing access to the same information, knowledge and other resources. Other instruments regard protocols and processes that guide their collaboration in terms of codes of conduct for exchange and behaviour. The third aspect of the organisational arrangements on the supply side is about organising several relationships in the entire supplier base, or rather the supplier network. This organising involves maintaining and renewing existing relationships, developing new supplier relationships and sources and promoting collaborative ventures among suppliers. The complexity of organising increases considerably when attention is shifted to organisational arrangements related to the entire supplier base of the buying company. Making the most of individual suppliers is best promoted by exploiting the variety and heterogeneity among supplier relationships. On the other hand, handling supplier heterogeneity is resource demanding and must, therefore, be combined with organising principles favouring homogeneity. Therefore, some standardisation is required regarding the infrastructure, including systems for information exchange and physical flows, as well as protocols, procedures and rules of conduct for purchasing behaviour. Organising purchasing and supply management is a complex issue that involves compromising between internal and external requirements. This compromise must satisfy the law of requisite variety (Ashby, 1958), implying that the variety of the external environment must be matched in the variety of the internal environment. Balancing these requirements for heterogeneity and homogeneity regarding organisational arrangements is a most crucial issue in purchasing and supply management.

making the most of suppliers in purchasing and supply management is largely a matter of organising. Organising involves creating conditions that favour monitoring and sense-making of what is going on at the supply side of companies. Furthermore, the organisational arrangements must allow for learning and development of individual skills and include designing inter-organisational interfaces that facilitate interaction with suppliers. Finally, making the most of supplier relationships involves a shift from the conception of purchasing and supply management focused on decisions regarding single discrete purchasing transactions, toward a broader perspective based on series of simultaneous transactions with several suppliers over time. References Ambos, T., & Birkinshaw, J. (2010). How do new ventures evolve? An inductive study of the process of charter change in technology ventures. Organization Science, 21, 1125–1140. Araujo, L., Gadde, L.-E., & Dubois, A. (2016). 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9. Concluding remarks Managing the supply side of companies in the contemporary context, featuring interdependence, globalisation and rapid evolution, is demanding. Buying firms appear to be increasingly aware of the potentially substantial returns from extended involvement with suppliers. As shown in this paper, making the most of supplier relationships requires effective interacting in supplier relationships and within the own organisation, monitoring of the interdependences in supply networks and flexibility in coping with dynamics. The current context and scope of purchasing and supply management is demanding not only because it is complex, but also because it requires learning and developing skills and capabilities to exploit potential opportunities. The main task is not simply to make sound, well-founded discrete decisions; it is as much about reacting sensibly to emerging situations at various levels of the supply network. To handle the myriad of issues involved in making the most of supplier relationships is beyond the skills and capabilities of any individual manager. Securing positive returns from engaging with suppliers requires that individuals' skills are supplemented with the skills and capabilities on the level of the entire buying firm. This means that effective purchasing and supply management is contingent on adequate organisational solutions. Such organisational arrangements are central for internal interacting, as well as for interacting with individual suppliers and the collective supply network. To stress the significance of organisational issues, we paraphrase the claim of Håkansson and Östberg (1975) that industrial marketing is mainly an organisational problem. In similar vein, the exploration in this paper enables us to argue that 8

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