The Impact of Trust, Power, Communication Negotiation, and Relationship Commitment

The Impact of Trust, Power, Communication Negotiation, and Relationship Commitment

on a Supply Chain Integration Strategy

Salahideen M. Alhaj, Linda R. Alnaqeep

Computer Information Systems Department, Management Information Systems Department

Faculty of Information Systems & Technology, ArabAcademy,

Amman-11942, Jordan.

Abstract

Supply Chain Integration was the main issue for many research works and received increasing attention from scholars and practitioners in recent years, despite the importance of trust, power, communication, negotiation, and commitment in relationship marketing. The understanding that commitment is crucial to the long-term success of a business relationship provides one of the core concepts in the understanding of organizational success. A lot of research work has been produced in this regard, but yet none has covered all factors of the integration process except [Alhaj and Alnaqeep 2008].

This paper proposes model and investigates the impact of the trust, power, communication, negotiation, and relationship commitment on the Supply Chain Integration Strategy (SCIS) between manufacturers and their customers, based on the critical importance of negotiation in e-commerce applications where the supply chain is dynamic and reconfiguring and a holistic perspective of customer integration by employing transaction cost theory, social exchange theory and using power–relationship commitment theory.

Index Terms: Communication, Negotiation, Trust, Power, Relationship Commitment, Supply Chain Integration.

Introduction

Supply chain or logistics network is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer [1]. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer [1].

A typical supply chain is very complex [2]. However complicated [3], a supply chain could be implemented through three elements: the supply chain processes, the supply chain network structure, and the management components [2]. A supply chain involves a variety of processes: customer relationship management, customer service management, demand management, order fulfilment, manufacturing flow management, supplier relationship management, product development and commercialization, and returns management [3]. In planning and optimizing a supply chain network structure, three aspects are considered to be of major importance; the members of the supply chain, the structural dimensions of the network, and the difference types of process links across the supply chain [3]. The management components in the supply chain setting include physical-technical management components and managerial-behavioural management components [2].

Enterprises adopt supply chain practices and cope with concerned areas of supply chain implementation, they would develop diverse supply chain skills and expertise and would learn to better integrate their social and technical systems [2]. This collective learning experience is the key to improved business performance [2].

Continuous learning is very important foundation for developing supply chain competence [4], composed of nine constructs: learning encouragement, learning structure, integrative mechanisms, shared culture, commitment, trust, communication, joint decision making, and win–win approach. Improvement in service levels and reduction in costs are necessary in improving organizational performance [5].

Managers would be in a better position to meet the challenges of global supply chain processes if they understand the implementation issues and their roles on supply chain effectiveness [2].

In the other hand, social and technical systems of a supply chain are essential to improving supply chains’ overall success [6]. A good social system enables enterprises to enhance supply chain coherence, while a solid technical infrastructure helps a supply chain to gain competitive positions [2].There are some factors that influence the social side of supply chain systems [7] .The quality of supply chain practices is significantly correlated with the supplier participation strategy and influences tangible business results and customer satisfaction levels [7].

Current trends in the design and the implementation of supply chain planning and scheduling systems were reviewed; Enterprises thus need to focus on both social and technical systems of a global supply chain [2]. Supply chain management practices involve suppliers in strategic and operational decision making, encouraging information sharing and searching for new ways to integrate upstream activities [2]. It also involves developing customer contacts through the use of customer feedback to integrate the downstream activities and delivering orders directly to customers at points of use [2]. Many issues that might adversely impact supply chain performance [8] , The integration of supply chain partners may be affected by insufficient flow of information, lack of trust, lack of know-how, lack of flexibility, management problems, lack of cost visibility, partners not being EDI capable, lack of reliability, and low quality [8]. The core competencies of a firm can be described as the collective learning of the organization [4].

The emphasis is on how to coordinate diverse skill sets and integrate them into the technical system [2]. Conducting supply chain diagnostics on: integrated systems, balanced performance measurements, aligned organization structure, efficient distribution; demand driven planning, agile manufacturing, and the order to cash process proposed on [9]. In the globalize market scenario, companies need to understand and challenge the competitive markets they operate in , in addition to escalating customer expectations from point view of; delivery speed, dependability, and flexibility. Supply Chain Integration Strategy (SCIS) is one approach to achieve boundaries less market competitiveness. Supply chain integration (SCI) received increasing attention from scholars and practitioners in recent years [10], despite the importance of trust and commitment in relationship marketing [11]. Based on authors review, supply chain integration (SCI) process needs it’s own tools which is still very limited. Some research works have focused on studding the influence of inter-firm relationships factors. Supply Chain Strategies and practices depend on not only the nature of the business, the competitive environment, and technological intensity of the product, but also on product and market characteristics [12].Consequently, supply chain integration (SCI) strategies should be evaluated in the light of a company’s market and product strategies [12]. In this paper, we investigate the relationship between trust, power, relationship commitment, communication and the integration of manufacturers with their customers, establishing the mechanisms of SCI based on the perspectives of power– relationship commitment theory, social exchange theory, and transaction cost theory.

Specifically, our objectives are: 1.To identify the antecedents of customer integration, 2.To propose a model that represents the relationship among customer trust, power, relationship commitment, communication and customer integration in a Supply Chain, 3. To justify and develop power–relationship commitment theory in the context of an emerging economy that has a high power distance and collectivist national culture, and 4. To offer guidelines for practicing managers to enhance their performance through understanding the role of trust, power, communication in SCI and better management of customer relationships. In Section 2 authors discuss literature review. In Section 3 we proposed our SCIS Model which is the main part of the paper. In Section 4 we point out the future work. in section 5 we point out the importance of SCIS . Brief concluding remarks in Section 6 close the paper.

literature review

Commitment defined as the desire by a party to a business relationship to maintain and strengthen that relationship [13].The understanding that commitment is crucial to the long-term success of a business relationship provides one of the core concepts in the understanding of organizational success [14,15]. Commitment provides the basis for a cooperative spirit in marketing channel relationships and leads to an overall stronger partnership [16].The highly committed distributor is more likely to provide market intelligence to the manufacturer based on the trust that has built up in the relationship.

Trust

Trust and commitment are central factors that contribute to successful relationship marketing because of their ability to lead indirectly to cooperative behaviour and produce outcomes that promote efficiency, productivity and effectiveness [13]. From its root in social exchange theory [17] , commitment is one of the key concepts in relationship marketing research [18]. Commitment is an exchange party's long-term desire to maintain a valuable ongoing relationship with another [13].

In the services marketing area, relationships are built on the basis of mutual commitment [19]. Following the literature, we define customer commitment as an exchange partner's willingness to maintain an important enduring relationship [18, 20]. The literature recognizes trust as a prerequisite to building customer relationships and as a preceding state for the development of commitment [13, 20]. Trust will occur when one party has confidence in an exchange partner's reliability and integrity [13]. Because of its salience in the context of uncertainty, trust plays a critical role for service providers and B2B marketers [19].

At the same time it very clear that effective services marketing depends on the management of trust because the customer typically must buy a service before experiencing it [20]. From point view of this paper, authors define customer trust as the customer's overall perception towards the ability, benevolence and integrity of the provider [21]. Interacting with other individuals, who are inevitably independent and not fully predictable, combined with an inborn need to understand the actions of others, presents people with an overwhelming complexity. The impossibility of controlling the actions of others or even just fully understanding their motivation makes this complexity sostaggering that it can actually inhibit intentions to perform many behaviors. Since people need, nonetheless, to interact on a continuous basis under such unpredictable circumstances, they apply a variety of methods for reducing this crushing complexity. Without these complexity reduction methods people could not interact with others on more than a onetime and uncommitted manner, and probably would not wish to, either [5]. Trust precedes the development of commitment. This is important to bear in mind because the two notions, although closely related, are quite distinct[11].

A.1 Quality

A major prerequisite for trust is the ability to interpret the other’s true intentions .Trust leads to a high level of affective commitment. Social exchange theory explains this causal relationship through the principle of generalized reciprocity. Trust leads the involved parties to focus more on the ‘‘positive’’ motivation because of a sense of affiliation and identification with each other, and this may be a stimulus to focus less on calculative reasons for attachment to a supplier firm[11] .Trust, in a broad sense, is the confidence a person has in his or herfavourable expectations of what other people will do, based, in many cases, on previous interactions[22], Based transaction cost analysis (TCA) framework, TCA scholars have argued that trust has the important effect of lowering transaction costs.

However, TCA related constructs also influence the level of trust in the economic exchange. In continuous, inter-organizational transaction, trust can be either an antecedent or a consequence of any constructs, including TCA-related ones[23]the degree to which the supplier could meet the functional requirements of the purchasing managers influenced the extent to which the latter trusted their supplier[11]. Similar in the financial sector. The impact of three specific quality dimensions on trust between suppliers and buyers of high-tech productsinvestigated in [24].That study was based on both normative and empirical assertions that trust depends on the credibility of the product and the quality of the service.They concluded that quality influences trust because high-tech products are complex, technologies change rapidly and malfunctions are frequent [11].

A.2 Bonding

Before trust develops, some guarantees should exist. Efficient customer bonding techniques may serve in this direction by reducing the uncertainties of the outcome of the relationship because it is a process through which the buyer and the provider build a relationship to the benefit of both parties. Writers in the field distinguish between two broad categories of bonds: structural and social[11]. Structural bonds describe ties at corporate level that, if severed, they incur considerable costs for the party responsible.

They last beyond the relationships that grow between the interacting individuals[11, 25].Specifically, in a study of the bonds that develop in the advertising industry, apart from the social bonds, identifies three more types of bonds[11].The confidential information the agency gains about the client’s goals, internal policies or business; the inter-organizational agreements, routines and norms of conduct that develop in a relationship, making coordination easier and more efficient and the costs (monetary and not) that the client can expect to suffer if switching from its current agency[11].

Customer power

Customer power is the ability of a customer to influence the decisions of a manufacturer in a supply chain [26]. Seminal work classifying power into five sources holding up to extensive empirical testing for almost 50 years.

B.1Non-Mediated Power

Non- Mediated Power sources, which are more relational and positive in orientation, include expert, referent, and traditional legitimate [15, 27, 28]. Expert powerCustomer has knowledge, expertise or skills desired by the manufacturer, Legitimate power Manufacturer believes customer retains natural right to influence it, Referent power Manufacturer believes customer retains natural right to influence it [10, 28]. Expert, referent and legitimate power are considered non-mediated, because the manufacturer, itself, decides whether and how much it will be influenced by a customer [10].

B.2 Mediated

Mediated power sources, which include reward, coercive, and legal legitimate, involve influence strategies that the source (buyer) specifically administers to the target (seller). Mediated bases represent the competitive and negative uses of power traditionally associated with organizational theory [29].

Reward and coercive power are considered mediated because their use is controlled by the customer, which can reward a manufacturer by creating positive consequences, such as placing customer orders [10]. In reward power Customer has the ability to mediate rewards to manufacturer, where in coercive powerCustomer has the ability to mediate punishment to manufacturer [10, 28]. National culture may play an important role in supply chain power. In a high power distance national [30] Because non-mediated power is based on the perception of the source’s power, rather than on its exercise [10]. In addition, members of high power distance national cultures are more willing to accept the use of coercive and reward power because the use of power needs less legitimization in a high power distance national culture [10].

Communication

Extant research has demonstrated the necessity of two-way inter-organizational communication for successful supplier relationship [31, 32]. Effective inter-organizational communicationcan be characterized as frequent, genuine, and involving personal contacts between buying and selling personnel [33] , at the same time communication can be classified as; Technical and Semantic.

Relationship commitment

Relationship commitment is the willingness of a party to invest financial, physical or relationship-based resources in a relationship [13]. In most business-to-business (B2B) exchanges, achieving a sale is not the fulfillment of an effort but rather an event in a broader endeavor to build and sustain a long-term relationship with the customer and see that sales keep coming [11]. Thus, the major issue is to examine what influences the customer’s willingness to remain with the existing supplier and furthermore to advance the relationship by investing in strengthening the ties with the supplier [11].

Product quality has traditionally been considered a major prerequisite for gaining this kind of behavioral response from the customer. However, as technology in many industries becomes a commodity, the importance of quality alone in deriving loyalty diminishes rapidly [11]. Marketing scholars have been responsive to this need. In most occasions, practitioners are advised to refocus from transactions to relationships [11]. This eventually led to the introduction and systemization of a new paradigm in marketing, that of relationship marketing [34]. Put it simply, relationship marketing seeks to cultivate a close relationship between the customer and the supplier and a sense of commitment of the former to the latter [11].

In return, the goal to obtain this sense of commitment brings the notion of trust on the top of the supplier’s agenda [11]. Within this framework, substantial empirical contribution has been derived from studies conducted within the international marketing and purchasing (IMP) group of mainly European researchers who investigated the management of relationships between suppliers and buyers [35].

Within this broader stream of research, trust and commitment are two highly interrelated notions [36]. which stimulating a relational bond between the supplier and the customer that facilitates the establishment of productive collaborations. Therefore, uncertainty in the relation is reduced, resource utilization efficiency is increased and value, for both parties, is generated [37].Despite the importance of trust and commitment though, the scholarly inquiry on the issue is hampered in three ways. One is the limited academic research to empirically document the factors that affect trust and commitment in marketing exchange relationships.

Rather, the mainstream of the research effort has been directed toward the study of inter-organizational relationships such as joint ventures or less institutionalized relations with the members of the channels [37,38]. A second issue relates to the failure to distinguish trust from related factors, i.e., factors that precede the development of trust and influence it [39] On the contrary, with the notable exception of a limited number of empirical studies [13,24,37] , many empirical studies assess trust by measuring sincerity, goal congruence [40], honesty, beliefs about information sharing [41], etc. Consequently, the conditions, which vest the relationship with trust and commitment, remain veiled. Finally, a third reason is the conflicting evidence regarding the directionality of the relationship between trust and commitment. [13, 24] , for instance, suggest a causal relationship from trust to commitment,.

Furthermore, when it comes to the marketing of services and specifically to B2B markets, with the exception of the study of [39], the empirical documentation is even slimmer. Yet, services are increasingly becoming a vital component of the product that the customers buy, even when it comes to such tangible products as computers or cars [42]. In view of these difficulties to underpin our understanding of trust and commitment development in B2B servicesmarketing relationships, an investigation of two specific factors and their role in cultivating trust and commitment is attempted: The quality of the service, as it is perceived by the client, and the customer bonding techniques used by the supplier. In doing so, the causality of the relationships between the various constructs is also examined. The next of the paper is organized as follows. First, the hypotheses of the study are developed based on relevant literature. Then, the methodology that guided the research effort is discussed. Next, the analysis used to test the hypotheses is presented followed by the discussion of the findings, the implications and the suggestion for future research. The degree of trust that develops between companies has been describedas a ‘‘fundamental relationship building block’’ [43] and a ‘‘critical element of economic exchange’’ [44] . The more the customer trusts the supplier, the higher the perceived value of the relationship by the customer [45] ; consequently, one can expect that the greater the chances will be that the customer remains in the relationship, as for the customer of B2B services, trust is an important element of the perceived quality of the service [46] .