Manufacturer price reduction pressure and supplier relations

Abstract

Purpose-Manufacturer price reduction pressure on suppliers is an important contributor to helping a manufacturer maintain a strong competitive position by keeping costs low. The benefits of trusting supplier working relations also help strengthen a manufacturer's competitive position. The purpose of this paper is to determine if manufacturer price reduction pressure and trusting working relations with the pressured suppliers, typically considered to be mutually exclusive, can co-exist. Design/methodology/approach-A structural equation modeling approach was used to analyze data covering 946 production buying situations involving 279 suppliers and six NA automotive OEMs. Findings-Manufacturer price reduction pressure and trusting working relations with the pressured suppliers, are not mutually exclusive, they can coexist. Research limitations/implications-The research found that it is not the pressure that impacts the manufacturer-supplier relations, but rather it is the manner by which the manufacturer goes about pressuring its suppliers that impacts its supplier working relations. The research, however, does not directly address how a manufacturer can achieve both ends simultaneously. Practical implications-Manufacturers no longer have to choose between exerting price reduction pressures on suppliers or working to achieve trusting relations with suppliers. They can successfully do both. At the same time, suppliers must recognize that these conditions may occur and when applied simultaneously ultimately benefit both parties. Originality/value-This research adds to the critically under-researched B2B pricing processes and pricing impact areas, while helping to influence managerial actions, an area in which academic B2B research is considered to be lacking.

Unintended Consequences: How Suppliers Compensate for Price Concessions and the Role of Organizational Justice in Buyer‐Supplier Relations

“…As partners experience higher levels of communication, informational justice is increased and, as a result, positive effects to the ongoing buyer–supplier working relationship occur (Henke et al. , ; Zhang et al. ) and the power balance dynamics in the relationship can be better managed (Nyaga et al.…”

“…This is consistent with extant research that suggests increased levels of equity in the relationship can increase the likelihood of future collaborations (Coley et al 2012). As partners experience higher levels of communication, informational justice is increased and, as a result, positive effects to the ongoing buyer-supplier working relationship occur (Henke et al 2008Zhang et al 2009) and the power balance dynamics in the relationship can be better managed (Nyaga et al 2013;Terpend and Krause 2015).…”

Procurement cost reduction for customized non-critical items in an automotive supply chain: An action research project

“…Since the price reduction pressure on suppliers is an important contributing factor for helping a buyer keep costs low (Henke, Parameswaran, & Pisharodi, 2008) and partnerships with suppliers are resource intensive, a close relationship with a supplier can be justified only when the costs of extended involvement are exceeded by the relationship benefits (Daly & Nath, 2005;Gadde & Snehota, 2000). Actually, a buyer can only be highly involved with a limited number of suppliers and needs a variety of relationships, each providing different benefits (Gadde & Snehota, 2000).…”

Towards a framework for enhancing procurement and supply chain management practice in the NHS: lessons for managers and clinicians from a synthesis of the theoretical and empirical literature

“…McHugh et al 407 found that the use of power could have a negative effect on relationship performance. Henke et al, 408 however, found that the use of power to obtain price reductions can coexist with trusting relationships if power is used in a responsible manner, while Tangpong et al 409 found that buyers using their dominance increased operational efficiency, but reduced product innovation. Overall, therefore, while there is no single message emerging from studies concerning power, there is considerable evidence to suggest that managers should include considerations of power in their relationship decision-making.…”