Supplier Satisfaction in Buyer–Supplier Relationships: Assessment from Supplier Perspective

ABSTRACT

Purpose

A long-lasting buyer–supplier relationship is vital for any business organization to be successful. The purpose of this study is to explore the factors that affect the supplier satisfaction in buyer–supplier relationships and to explore their causal relationships.

Methodology

The work is an attempt to probe the issue of supplier satisfaction in a purchasing relationship and the various factors that might have a bearing on this relationship. An instrument, developed for this purpose after conducting wide-ranging discussions with Heads and Operations Officers of supplier firms as also the available literature on the subject, was validated through pilot testing. A selection of nearly 300 Indian suppliers comprised the respondent firms in our study who were invited to participate in our online or paper-based survey. Partial Least-Squares path modeling (PLS) was the technique chosen to evaluate the proposed model.

Findings

The paper builds on earlier research on the topic to replicate their study in a new context. The major findings of our research relate to the following aspects: (a) assess the importance of supplier satisfaction for the buying firm to receive preferred customer status, (b) re-establish the importance of cooperation as a precursor for managing the buyer–supplier relationship, and (3) apply the PLS analyses method to evaluate the factors and their order in terms of their contribution to the overall supplier satisfaction level. The results show that the important positive effects on supplier satisfaction in buyer–supplier relationships are the ones linked to cooperation, coordination, payment policy, and purchasing policy by this order.

Research implications

This study extends previous meta-analyses suggesting that proper cooperation could be the source of a competitive advantage enjoyed by the firms on both sides of the supply chain. The present study provides a guidance toward conducting future research on satisfaction measurement in buyer–supplier relationships from the perspectives of both buyers and suppliers.

Practical implications

The present study explores how factors like conducive policy, transparent communication, and coordination efforts by the buyer affect the value in the buyer–supplier relationships. Our findings present three direct implications for managers of buyer firms. First, the work provides an empirically grounded argument for making conscious efforts toward improving cooperation with supplier firms to achieve better supplier satisfaction. Second, the work provides guidelines to the managers for prioritizing synergetic investments in developing sustainable and fruitful relationships with suppliers. Third, the study results indicate a word of caution for managers who aim to simultaneously improve the buyer firm’s information technology (IT) capability while ignoring its integration with the IT infrastructure or the lack of it that exists in the supplier firms.

Originality/Value

This paper investigates why supplier satisfaction is relevant for buyer–supplier relationships and what are the relevant factors associated in this context. The findings expand the current understanding of these concepts by building upon practitioner inputs and survey results.

KEYWORDS:

• Supplier satisfaction
• buyer-supplier relationships
• supplier perspective
• partial least squares path modeling

Implications for Business Marketing Practice

A long-lasting buyer-supplier relationship is vital for any business organization to be successful. Satisfaction with each other is an important element to establish better relationships. The purpose of this study is to explore the factors that affect the supplier satisfaction in buyer-supplier relationships and to find out their causal relationships. The present paper aims to explore the factors that have a significant influence on the suppliers’ satisfaction in buyer-supplier relationships and to understand their causal relationships.

The research identifies the related factors and the order in terms of their contribution to the overall supplier’s satisfaction level. The paper develops a conceptual framework tested through a survey.

The work is an attempt to probe the issue of supplier satisfaction in a purchasing relationship and the various factors that might have a bearing on this relationship. An instrument, developed for this purpose after conducting wide-ranging discussions with Heads and Operations Officers of supplier firms as also the available literature on the subject, was validated through pilot testing. All the issues were on focus from a supplier’s perspective. For research design, the questionnaires were framed based on the factors identified from previously published research work carried out in this area and suggestions from both the buyer and the supplier organizations. The initial questionnaire was modified based on the opinion of pre-testing participants following which a formal survey was finalized. This study chose nearly 300 Indian firms who are suppliers to some organizations and invited these organizations to participate in our online or paper-based survey. Partial Least Squares path modeling (PLS) was the technique chosen to evaluate the proposed model. The choice of the PLS approach to carry out this research is primarily to identify an efficient approach to understand supplier satisfaction with a focus on maximizing the explained variance. To measure the validity of the model and to ensure that theoretical constructs are adequately presented, individual item reliability, discriminant validity, and internal consistency were assessed.

The results indicate that there is a need for the buying firm to pay attention to selected factors for improving activities to raise the level of satisfaction of the suppliers. The results show that the important positive effects on supplier satisfaction in buyer-supplier relationships are the ones linked to cooperation, coordination, payment policy, purchasing policy by this order. The engagement of the buyer firm with its suppliers through smooth cooperation appears to be the most influencing factor of supplier satisfaction. This was followed by the ‘Purchasing Policy’ of the buyer firm which plays a significant role in shaping the supplier’s satisfaction. Next in line are ‘Coordination’ and ‘Payment Policies’ in that order signifying the importance of ensuring effective coordination among supply chain partners and the financial policies of the buyer firm, specifically referring to that related to the timely payment of suppliers’ dues. Surprisingly, the factor related to technology and digitization does not affect supplier satisfaction according to the study.

The procurement function in the buyer firm should emphasize building up the required capabilities and capacities to support enduring relationships with the supplier firms. The engagement of the buyer firm with its suppliers through smooth cooperation appears to be the factor most influencing supplier satisfaction. It’s important that their creativity and innovativeness are appreciated much, which is seen as an antecedent for satisfaction. It’s also important that personal contacts with supplier’s representatives and empathy with each other is established so that a close relationship among the two partners develop.

A level of trust between partner firms is essential for both the firms to maintain the minimum requirements of a relationship. Trust constitutes both ability and integrity and when these are well executed, it results in a higher success rate for both the firms within the relationship. If the supplier experiences more relational benefits, the firm is expected to show more commitment to a buyer. If the buyer stretches itself to help their supplier, it will result in more satisfaction. To drive supplier satisfaction, ensuring business continuity would be the key driver but it should be supported by the visibility toward the future and an assurance to be part of the business roadmap of the buyer firm. The supplier firms should feel that they would be part of the future success of the focal firm. Suppliers would have to be an integral part of the focal company and share a concern on mutual business development and vision. This can be ensured by transparent processes and actions undertaken by both the buyer and its suppliers and a consistent engagement from the buyer company.

An interesting outcome of the research is refuting the hypothesis related to technology. This must be understood in the context of India where the research has been conducted. This may be a result of the capital expenditure which the supplier organizations would have to incur for developing their IT systems. Many of the technology solutions are difficult to adopt in small and medium industries – a large of supplier firms in our study belong to this category - as there is often a lack of enough funds allotted for such technology adoption in these firms. Further, there is always a risk related to adopting and investing in emerging technologies by organizations leading to potential financial losses and uncertain payback. Among the small and medium enterprises in the Indian context there is often a lack of requisite IT infrastructure that is required to support the IT systems installed in the buyer firm including perhaps the issue of signal attenuation due to weak signal coverage in certain manufacturing premises.

Our findings present three direct implications for managers of buyer firms. First, the work provides an empirically grounded argument for making conscious efforts toward improving cooperation with supplier firms to achieve better supplier satisfaction. Second, this work provides a guideline to these managers for prioritizing synergetic investments in developing sustainable and fruitful relationships with suppliers. Third, the study provides a word of caution for managers who aim to simultaneously improve the buyer firm’s IT capability while ignoring its integration with the IT infrastructure or the lack of it, that exists in the supplier firms. This becomes a bigger concern when most of the supplier base is small and medium enterprises who largely lack the required bandwidth of IT capability.

This study confirms and extends some of the basic findings reported by previous research work. First, it provides empirical support that cooperation plays the most important role in ensuring supplier satisfaction. Doing so, this study extends previous meta-analyses suggesting that proper cooperation could be the source of a competitive advantage enjoyed by the firms on both sides of the supply chain. The present study provides a guide toward conducting future research on satisfaction measurement in buyer-supplier relations from the perspective of both buyers and suppliers, an interesting research area.

This study shows practical guidance to the buying firms to measure the level of supplier’s satisfaction on its various activities and highlights the areas for further improvement. The present study explores the role factors such as conducive policy, transparent communication, and coordination efforts by the buyer to display the value in the buyer-supplier relationship could play and thus create a feeling of fulfillment despite possible power imbalances. Our findings present three direct implications for managers of buyer firms. First, the work provides an empirically grounded argument for making conscious efforts toward improving cooperation with supplier firms to achieve better supplier satisfaction. Second, this work provides a guideline to these managers for prioritizing synergetic investments in developing sustainable and fruitful relationships with suppliers. Third, the study provides a word of caution for managers who aim to simultaneously improve the buyer firm’s IT capability while ignoring its integration with the IT infrastructure or the lack of it, that exists in the supplier firms.

Our findings might help managers from buying organizations to better evaluate their relationships with suppliers and align their strategies accordingly. This research replicates and extends the previous research on supplier satisfaction in the buyer-supplier relationship. This paper investigates why supplier satisfaction is relevant for buyer-supplier relationships and what are the relevant factors associated.