The case for measuring supplier satisfaction.

Lawrence, John J.

ABSTRACT

Many organizations struggle in their efforts to establish supplier partnerships, and many such partnerships fail to live up to their potential. This paper examines why partnerships do not deliver the hoped for results, and proposes supplier satisfaction surveys as a possible remedy to this situation. Drawing upon empirical studies in the supply chain management literature, the paper establishes that (i) successful partnerships require trust to develop between organizations; (ii) such trust requires open, two-way communication; and (iii) despite the recognition of the importance of communication, a significant and persistent perception gap exists between buyers and suppliers within many such partnerships. The cause of this perception gap is then traced to a communication imbalance between buyers and suppliers. While buyers generally communicate expectations and provide feedback to suppliers, there is little evidence that expectations and feedback flow the other direction (i.e., from suppliers to buyers). The paper makes the case that buyers can use supplier satisfaction surveys to correct this imbalance and eliminate the perception gap impeding the development of effective buyer-supplier partnerships.

INTRODUCTION

Supply chain management theory and practice has evolved over the last twenty years from a focus on transaction processes based on arms-length agreements with suppliers to a focus on collaborative processes based on mutual trust and information sharing (Ghosal & Moran, 1996; Hoyt & Huq, 2000). Organizations are increasingly trying to work much more closely with their suppliers to try to optimize the performance of their supply chain, and many of these organizations now describe their relationship with their suppliers as partnerships. Research indicates that when well executed, these collaborative, partnership-like relationships with suppliers can lead to improved firm performance (Tracey & Vonderembse, 2000; Jones et al., 1997; Liedtka, 1996; Handfield & Nichols, 1999).

For these types of collaborative partnerships to be successful, however, buying organizations must implement fairly radical changes to their own organizational processes and structures to support them (Liedtka, 1996; Mariotti, 1999). Further, the processes and methods needed to really achieve such partnerships are still being developed, understood and refined. As a result, many organizations struggle in their effort to implement partnerships (Mariotti, 1999; Spekman et al., 1998). Many buyer-supplier partnerships do not live up to their potential, and many are not true "partnerships" in any real sense of that term.

Saying one has partnerships with their suppliers is quite easy, but actually transforming one's approach to how one works with and manages their suppliers to achieve real partnerships with one's suppliers is significantly more complex. As Spekman et al. (1998) characterize it, most organizations that claim to have partnerships with their suppliers have simply achieved some level of cooperation whereby the firms "exchange bits of essential information and engage some suppliers/customers in longer-term contracts" (p. 55). True partnerships, however, are built on a foundation of trust and commitment that goes well beyond mere cooperation. Partners collaborate with each other to develop shared goals and to integrate their processes into their major customers' processes. Such firms recognize and act on the fact that their long-term success is dependent on their weakest supply chain partner. Many companies, however, never reach this stage of true partnership and collaboration (Spekman et al., 1998).

This paper proposes a means to help move organizations toward true partnerships with their suppliers--supplier satisfaction measurement. It proposes that buyers need to think of their suppliers more like they think about their customers, and only when this occurs will organizations really begin to view their suppliers more like partners and less like traditional suppliers. The paper begins with a look at the prerequisites of successful partnerships--inter-organizational trust and communication. After establishing the role of trust and communication, the paper focuses on the significant gap that exists between buyers and their suppliers regarding their expectations and assessments of performance in buyer-supplier partnerships. This gap creates a significant barrier to the development of trust in the relationship. It is then proposes that measuring suppliers' expectations and perceptions regarding their relationship with buying organizations is the simplest way to overcome this perception gap and move the relationship closer toward a true partnership. Finally, it is proposed that the underlying cause of the perception gap relates to the highly directional view that most organizations hold relative to their supplier chains, and that in reality buying organizations should view their suppliers in a similar way that they view their immediate customers in the supply chain.

SUCCESSFUL PARTNERSHIPS ARE BUILT ON COMMUNICATION & TRUST

Many theorists propose, and empirical studies seem to confirm, that success of supplier partnerships depend, at least in part, upon the level of trust and cooperation that can be achieved between the organizations and upon the extent and quality of information sharing that occurs between the organizations. Ellram (1995) collected data from 80 matched pairs of buyers and supplier organizations in order to assess what factors led to successful partnerships. Ellram found that for both buyers and suppliers, that communication, trust, strategic direction and shared goals were the critical factors in creating and maintaining successful supplier partnerships. Monczka et al. (1998) found similar results by looking at survey data from 84 buying organizations. Monczka et al. measured partnership success in terms of the buying company's satisfaction with the partnership, the performance improvement experienced by the buying company as a result of the partnership, and the extent to which the partners were able to work together (e.g., how flexible the partners were to requests made by the other and whether partners met their commitments within the partnership). The researchers found that trust, interdependence, information quality, information sharing, information participation (i.e., the extent to which partners engage in joint planning & goal setting activities) and joint problem solving efforts all contributed to more successful supplier partnerships.

Krause and Ellram (1997) collected data from 520 buying organizations in order to investigate the related issue of supplier development efforts. Using a split sample approach, they found that the organization's that were satisfied with the results of their supplier development efforts tended to take a more proactive approach to supplier performance (e.g., trying to anticipate supplier performance problems and viewing suppliers as extensions of their own organization), put more effort and resources into their supplier development efforts (e.g., supplier evaluation & feedback, training of supplier personnel, and recognition of outstanding suppliers), and exhibited greater willingness to share information with their suppliers. While this last study focused on supplier development as opposed to supplier partnerships, it is relevant here given many organizations efforts to form supplier partnerships have roots in their efforts at supplier development.

Repeatedly, then, large sample studies have found that communication and trust play a pivotal role in the establishment of partnership relationships between buyers and suppliers. Other researchers (e.g., Henriott, 1999; Mariotti, 1999; Yuva, 2001) have also argued that the information sharing is really a prerequisite for the development of trust, and subsequent studies focused on trust between buying and supplying organizations confirm the importance of communication to the development of trust and relationship quality. Parsons (2002), for example, investigated the determinants of buyer-supplier relationship quality, measuring relationship quality as the buying organizations' assessment of the trust that existed within the relationship in addition to the buying organizations' general level of satisfaction with the relationship. Based on survey results from 368 organizations, Parsons found that both the interpersonal relationships between the individual buyers and salespeople and the relationship between the companies in terms of the existence of mutual commitment, goals and relationship benefits contributed to higher relationship quality. Communication plays a significant role in both the interpersonal relationships as well as in the organizations identifying and developing mutual goals and commitment.

In another study looking at trust in buyer-supplier relationships, Cousins and Stanwix (2001) looked at the management of supplier relationships among automobile manufacturers operating in the U.K. in an effort to identify those factors that contributed to a high trust relationship. Results indicated that manufacturers found 17 factors contributed to high trust relationships, including full and open communication, consistency from all personnel, full cost transparency, receptiveness to supplier ideas, and providing help to suppliers with 'no strings attached'. Interestingly, the Japanese vehicle manufacturers in the study reported that these contributing factors were fairly easy to implement, while non-Japanese manufacturers found such activities to be harder to implement. The authors of the study concluded that the Japanese vehicle manufacturers tended to view 'relationship development' as what supply chain management was all about--it was simply an integrated part of what they did. Non-Japanese vehicle manufacturers, on the other hand, seemed to think more in terms of 'supplier development' rather than 'relationship development' and viewed supplier development as an extra responsibility of their work (as opposed to an integrated part of it).

Cousins and Stanwix's (2001) finding that many organizations fail to view the relationship development component as central to the supply chain management function is consistent with the more general finding that buying organizations struggle to achieve true partnerships with their suppliers and that many continue to manage suppliers based on more of an arms-length relationship approach (Maniotti, 1999). It is also consistent with the findings of Spekman et al. (1998), who studied the practices of buyers and sellers in 22 aggregate supply chains, and found that "buyers tend to embrace the notions of collaboration less than sellers and appear to fear the close ties that are required for integrated supply chain management" (p 59). For example, Spekman et al. found that buyers were less willing to devote extra effort to their supply chain relationships and were less likely to view their suppliers as irreplaceable and essential to their business than their immediate customers in the supply chain. So while communication and trust seem to be part of the foundation upon which supplier partnerships are built, the evidence suggests that many organizations struggle to really achieve these goals. This difficulty in achieving trust appears to be based in part on the fact that buyers and suppliers perceptions of their partnership arrangements differ significantly.

BUYERS AND SUPPLIERS DO NOT PERCEIVE PARTNERSHIPS THE SAME

Ellram (1995) and Blancero and Ellram (1997) carried out one of the first supplier partnership studies dealing with the perceptions of both buyers and suppliers. Ellram and Blancero used data collected from 80 matched pairs of buyers and their corresponding suppliers to compare the perceptions of buyers and suppliers in terms of which factors were the most important contributors to successful supplier partnerships (Ellram, 1995) and in terms of what was happening in these relationships (Blancero & Ellram, 1997). In terms of factors contributing to a successful partnership, both buyers and suppliers agreed that communication and trust were critical. Suppliers, however, consistently saw the relationship aspects of the partnership (e.g., relationships among top management teams, the existence of multiple relationships between the organizations, the personal relationship between the buyer and salesperson) as more significant to the success of the partnership than did the buying organization. In terms of what was happening in these relationships, buyers and suppliers frequently did not share the same perceptions. Further, where there were differences in perceptions, the buying organization in every case perceived that their own behavior was more supportive of the relationship than the suppliers perceived their behavior. The buying organization perceived that they met with the suppliers top management more, that they more regularly communicated forecasts, production schedules and proprietary information, that they worked more with suppliers on cost reduction and quality improvement efforts, and that they involved suppliers early in the design process more than suppliers perceived these activities occurring.

Subsequent studies investigating the perceptions of both the buying and supplying organization confirm Ellram (1995) and Blancero and Ellram's (1997) finding that perceptions between buyers and suppliers differ. Campbell (1997), for example, conducted a study in the European packaging industry, collecting data on the relationship between 45 buying organizations working with three large packaging suppliers. Data was collected from 28 salespeople from the three suppliers and 114 purchasing agents from the 45 buying organizations. Campbell found that the buyer and salesperson shared the same expectations about the partnership in only 42 of the 114 relationships (37%). Further, no correlation was found between a buyer's trust in the supplier and the corresponding supplier's trust in the buyer, nor did the suppliers' perceptions of the extent of proprietary information disclosed by the buying organization match the buying organizations perceptions on the extent of proprietary information disclosed. In another study of a Korean semiconductor manufacturer and its key suppliers, Kim et al. (1999) found significant perception gaps existed between buyer and suppliers. Like Ellram's (1995) study, Kim found that suppliers perceived relational characteristics like communication, familiarity and long-term goals to be more important to the effectiveness and success of the relationship than did the buying firms. Further, Kim found that this perception gap had a negative impact on inter-firm trust.

In fact, no studies could be found that indicated that buyers and suppliers consistently shared the same perceptions regarding their expectations for and/or the subsequent behaviors realized in buyer-supplier partnerships. The evidence suggests that the vast majority of buyers do not have an accurate picture of their suppliers' perceptions of the partnership--either in terms of expectations or performance. It is difficult to understand how an organization can truly claim to have a partnership with suppliers when such a situation exists. Rather, the ongoing perception gap would appear to provide a plausible explanation for why so many organizations do not realize the full potential from their partnerships.

Wagner, Macbeth and Boddy's (2002) in-depth case study on the relationship between a buying organization and one of its suppliers that it was attempting to develop a partnership relationship with provides a good example of what can happen when organizational perspectives on the relationship differ. In early stages of the partnering process, the supplier felt a continuing and significant imbalance of power in favor of the buying organization. Among the supplier's personnel, this created the impression that improvement ideas would only be considered and accepted by the buying organization if there was minimal impact and disruption for the buying organization. Whether or not this perception was justified was unclear to the researchers, but what was clear was that it greatly limited the range of ideas put forth by the supplier. As trust and commitment grew, and as the buying organization moved more toward treating its supplier more like a partner and less like a traditional supplier, the supplier became more comfortable communicating to the buying organization things that the buying organization could be doing differently to help the supplier.

THE ROOT CAUSE OF THE PERCEPTION GAP: ONE DIRECTIONAL THINKING

This paper has established three facts so far about the current state of buyer-supplier relationships based on the supply chain management literature. First, buying organizations increasingly face the competitive need to establish partnership-like relationships with their suppliers in an attempt to optimize performance of the value chain for their end customers. Second, communication and the establishment of trust between buying organizations and their suppliers are consistently found to be key components to the establishment of successful partnerships. Finally, there is strong evidence that a perception gaps exits between buying organizations and their suppliers; despite the recognition of the importance of communication in such efforts, most organizations' communication efforts seem to fail. Such differing perceptions are likely to generate underlying conflict in these relationships and impede the development of trust, which is so critical to the success of such partnerships. As such, buying organizations and suppliers attempting to establish or maintain partnership-like relationships need to find a way to overcome this perception gap in order to advance the relationships toward true partnerships where they can produce maximum operational and strategic benefit to the firms.

Before discussing the proposed solution to this perception gap, it is worth considering the underlying cause of this perception gap. The cause would seem to relate to the fact that information sharing in most buyer-supplier arrangements, even many of those that the buying organization calls partnerships, is limited and somewhat one dimensional, focusing primarily on the performance of the supplier (Campbell, 1997). Buying organizations now routinely communicate detailed expectations to their suppliers--both specific expectations (e.g., we want our supplier to perform this service, and this is how we want it performed) and general expectations (e.g., we expect suppliers to be proactive in working with our company). Buying organizations are also increasingly providing their suppliers with regular, detailed feedback on how the suppliers are meeting these expectations. But there is little evidence that buying organizations are asking for, or are typically receiving, the reverse information. That is, buying organizations are not in general, asking their suppliers what their suppliers expect from them, nor are they typically asking their suppliers for feedback on how they, the buying organizations, are performing. This limited view that most buying organizations take to information sharing, amounting really to information giving, appears to create the perception gaps revealed in the literature and hinders many of these arrangements from developing into true partnerships that lead to improved firm performance.

This one directional flow of information appears to be symptomatic of a broader, entrenched view that supply chains have an inherent directional focus to them. That is, when organizations think about their supply chains, they think first about the flow of goods and services from raw material supplier toward end customer (i.e., constantly moving downstream) and second about the flow of information in the supply chain from end customer backward toward raw material supplier (i.e., constantly moving upstream). There is also a power component to this linear thinking, whereby organizations downstream tend to have more power, while organizations upstream have less power based on the fact that customers have the power to "choose" a different supplier, while suppliers are not in the same position of simply being able to "choose" a different customer.

As a result of this linear thinking, organizations tend to treat downstream members of the supply chain very differently than they do upstream members of the supply chain. Organizations will do whatever it takes to be the preferred supplier of their immediate customer, but rarely will they approach their upstream suppliers with the attitude of doing whatever it takes to be their suppliers' preferred customer. In fact, more typically, organizations expect their suppliers to do whatever it takes to be their preferred supplier. This fails to optimize the performance of the supply chain, however, because each upstream member of the chain must work within the constraints, both explicitly stated by the downstream member and perceived by the upstream organization, and optimize within these set of constraints. True optimization of the supply chain requires these constraints to be examined and in many cases modified through collaboration among the upstream and downstream members of the supply chain.

What is needed is for organizations to see beyond the directional orientation that they have toward their supply chains. A significant advancement in the supply chain management literature along these lines is the use of the term "networks"--either described as supply networks or demand networks. Being a member of a demand network implies much less directionality to relationships than does a supply chain. Ultimately, competition is between these networks of companies working together to satisfy the final customer, not between individual companies. That is, the competitive success of an individual firm has as much to do with what its partners do as it does with what it does. If an important partner in such a network fails to perform its function well, the whole network of organizations suffers because end customers switch to an alternative network of companies to purchase from. Further, it largely doesn't matter whether that organization that fails to perform is an upstream or downstream organization, the network itself suffers as a result. Given this state of competition, firms need to be working more to insure that their actions support the actions of all members of the network, regardless of whether they are upstream or downstream. It is suggested that firms take what they know about serving downstream organizations, and apply that to better serving upstream organizations.

THE SOLUTION: MEASURING SUPPLIER SATISFACTION

The simplest solution to insuring that differences in perceptions between buyers and suppliers doesn't restrict the gains from supplier partnerships is for buyers to measure supplier perceptions and determine their expectations for the partnership, their expectations of the buyer in the partnership, and their perceptions of the buyer's performance in the partnership. In essence, buyers need to measure supplier satisfaction in the same way that their firm would measure customer satisfaction. Such measurement would allow firms to begin to bridge the perception gap in their relationships with suppliers, allowing relationships to advance toward true collaboration and partnership. With a more accurate understanding of its role in the partnership, the buying firm is then in a position to change its behaviors to better allow the supplier to meet the buying firm's needs.

Roberts (2001) has recently proposed that supply chain management/purchasing departments should begin to survey their internal customers--the marketing, production and engineering functions within the firm--as a basis for evaluating and improving its performance. Roberts suggests that surveying internal customers will help purchasing managers better understand their customers and their customers to better understand them. It also signals to internal customers that the purchasing group cares about their needs and as such helps promote trust between the purchasing group and its customers. Communication of survey results back to respondents, along with action plans for improvements based off the surveys, represents an opportunity to further develop trust and enhance the relationship with internal customers. Such communication shows internal customers that the purchasing group is responsive to their concerns and needs. What is suggested in this paper is that this approach be extended to the organization's suppliers, since the same need for trust and a working relationship exists. Roberts proposes such a survey because the purchasing department serves these other departments in the firm. In the similar way, the purchasing group provides a service to the supplier. That is, one role of the purchasing department is to facilitate the interactions between suppliers and the rest of the organization. It would make sense for the purchasing department to ask how well it was meeting both sides' needs in this role. The survey proposed in this paper, however, would go beyond simply measuring supplier satisfaction with the purchasing department (although a more limited survey like this might provide a good starting point) and also look at the suppliers' satisfaction with the overall performance of the firm.

Measuring suppliers' expectations of the buying organization and suppliers' perceptions of the buying organization's performance represents a very concrete process aimed at maintaining and strengthening partnerships with suppliers. Landeros et al. (1995) found that many buyer-supplier partnerships fail because partners lack an established process to maintain the relationship. The researchers argued that an important part of such a maintenance process was to be able to understand how problems can enter a relationship. Further, Landeros et al. found that differences between expectations & performance, more than absolute performance, drove successful buyer-suppler relationships. According to Landeros et al. (1995, p. 10), "The partners expectations and perceptions of each other's performance generally appear to be the primary factors in the development and maintenance of a sound buyer-seller partnership." Given the importance of both expectations and perceptions of performance, a servqual-like instrument might be an appropriate starting point for developing an appropriate survey. This is also the type of survey methodology that Roberts suggested was needed when working with internal customers. Interestingly, while Landeros et al. (1995) argued that successful buyer-supplier relationships depended on the fulfillment of mutual expectations, their recommendation focused solely on the buyer developing expectations for the supplier and measuring the supplier's performance against those expectations, and did not deal at all with creating expectations for the buying organization or measuring the buying organization's performance relative to those expectations.

Approaches other than a formal supplier satisfaction survey might also be used to evaluate the buying organization's performance vis-a-vis its suppliers--the point is more generally that buying organizations need to get feedback from their suppliers on how well they believe that the buying organizations are performing in the relationship. Vokurka (1998), for example, describes one company's successful supplier partnership program that included a supplier advisory council that was initiated to create a mechanism to foster continuous improvement in how the company managed supplier partnerships. The council consisted of either the president or division head of six major material suppliers along with the company's own president and its directors of manufacturing, engineering and purchasing. The council's purpose was "to review current and proposed purchasing policies and practices with the overall goal of making the company the best customer it can be." (Vokurka, p. 33). Most organizations do not approach their relationship with suppliers with the goal of being the best customer possible. However, it is this underlying change in attitude that is necessary to truly optimize performance in the supply chain.

CONCLUSIONS

This paper has attempted to make the case that buying organizations should be treating suppliers more like customers and specifically need to begin to seek supplier feedback on the buying organization's performance. Empirical evidence clearly indicates that (i) buying organizations are attempting to establish more partnership like relationships with their suppliers, and that when successfully implemented, such relationships lead to improved firm performance and competitive standing; (ii) successful partnerships require trust to develop between organizations, and such trust requires open, two-way communication; and (iii) despite traditional communication efforts between buyers and suppliers, a significant and persistent gap exists between buying organizations and their suppliers in terms of their expectations and their perceptions of the their partners performance.

These three results, taken together, indicate a significant shortcoming in the management of an organization's supply chain. It is proposed that the root cause of this problem stems from thinking about supply chains as having a dominant directional component. Treating suppliers a little more like customers should help to overcome this mentality, allow firms to eliminate the significant perception gap that impedes development of a true partnership approach, and promote real optimization of performance across an organizations supply chain. The proposed first step is for buying organizations to ask their suppliers for feedback on how well they are performing in the relationship. This information should put buyers in a much better position to truly optimize performance of the supply chain.

It could be argued that the analysis and proposals put forth in the latter half of this paper are off the mark because suppliers are different from customers and can generally be replaced more easily than customers (assuming that another supplier exists that has the necessary capacity and capabilities to meet the buyer's needs). This argument, however, misses the point. Organizations that think about their suppliers as easy to replace are almost certainly not treating their suppliers like partners. The point is that organizations need to begin to view their key suppliers as invaluable as their key customers, and begin to treat them as such. Measuring suppliers' satisfaction with the buying organization's performance and responding to supplier concerns raised through such a process strengthens the network of companies that the buying organization competes within, ultimately benefitting the buying organization.

In closing, it should be noted that thinking about suppliers more like customers certainly does not preclude the buying organization from saying "no" to a supplier request or even switching suppliers if it becomes apparent over time that the supplier-partner is no longer an asset to the supply chain. What it does is provide the buying organization with much needed information about how their suppliers view them as a customer, which can help overcome the perception gap in the relationship, which would seem to help significantly in the establishment of trust that so many organizations report as critical for successful buyer-supplier relationships. Likewise, it provides a means to uncover opportunities at the boundaries in the supply chain for true supply chain optimization to occur.

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John J. Lawrence, University of Idaho