Trust Special Issue Final

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Supply Chain Trust

January, 2012

Special Issue


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ONTARIO INSTITUTE OF THE PURCHASING MANAG EMENT ASSOCIATION OF CANADA

1 Dund as Stree t West, PO Box 64, Suite 2704 Toro nto , Onta rio M5G 1Z3 Tel. 416-977-7566 Fax. 416-977-4135info@oipma c.c a www.oipmac.ca

Special Issue Introduction Supply Chain Trust

This months special issue explores the state of research and practice pertaining to supply chain trust.

The topic of trust is not new and has been extensively studied in the fields of psychology, sociology and

even economics. Its study, however, has largely been focused at the individual level. Supply chain

research on trust, however, extends the domain of applicability to that of the firm and this representsfertile ground for research that is relevant to todays business environment. While economists such as

Williamson (1985) and Arrow (1974) lead the discussion on the impact of trust on firm behavior,research in a supply chain context only began in earnest about 15 years ago. The articles abstracted this

month highlight varying dimensions of supply chain trust that have been researched over the past 15

years. While they are not an attempt to be all inclusive of this field of research, they represent the key

ideas moving forward.

Early in his academic career, Gulati (1995) empirically demonstrates that a repetitive alliance formation

between two firms generates trust and that subsequent alliances are more likely to involve less formal

and less complex contracts such as nonequity-based contracts. A more recent study by Gulati and

Nickerson (2008) weighs in on the debate of whether trust serves as a substitute for contracts or whetherit acts as a complement to contracts. The two authors find that both can be true and provide empirical

support to this point.

One of the challenges faced by researchers in this field is agreeing on a common definition and

measurement system of trust. Two of the articles in this special issue deal with this topic: Jones et.al.(2010) and Laeequddin et.al. (2010). While Jones et.al. focus on the two most relevant dimensions of

trust to supply chain management (trust in competence and goodwill), Laeequddin et.al. provide a more

broad overview of trust research as found in the fields of not only business, but also of psychology and

sociology. These two papers are solid reference articles for those embarking on supply chain trust

research.

Building on the Jones et.al. (2010) study, Ha et.al. (2011) explore the two dimensions of affective trust(goodwill) and competency trust and empirically show its impact on logistics efficiency. A more refined

categorization scheme is presented by Fawcett et.al. (2004) wherein the authors suggest five dimensions

of supply chain trust.

While few would argue that supply chain trust yields positive results, the reality observed by empirical

analysis confirms that this concept remains elusive for most firms. The question then becomes, why is it

elusive? Why are firms struggling with the implementation of increased trust-based relationships?

In their seminal 2008 paper, Fawcett et.al. (2008) present a framework that highlights the management

change process that is required for firms to embrace supply chain collaboration. A key point in thisarticle is the role that top management plays in moving such a transformation forward. This topic of

supply chain leadership is further discussed in Fawcett et.al. (2010).

Summarizing the state of supply chain relationship research over the past few decades, Daugherty

(2011) highlights not only what has been done, but what ripe opportunities exist for further research in

this area, including test-based research.

We hope you enjoy this special issue on supply chain trust!
mailto:[email protected]:[email protected]:[email protected]


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Title: Review of logistics and supply chain relationship literature and suggested research agenda

Journal: International Journal of Physical Distribution & Logistics Management, 2011, Vol. 41, No. 1,

pp. 16-31

Authors: Patricia A. Daugherty

Key Words: strategic alliances, distribution management, partnership, supply chain management

http://search.proquest.com/docview/846768440?accountid=130991

Overview: A general review of relationship-focused research in logistics and supply chain management

areas is provided followed by suggested areas for further research. The author makes it clear that the

review is not comprehensive, but tries to be chronological and thematic in addition to focusing on

relationally governed situations (Rinehart et al. 2004).

In the 1980s and 90s, partnerships and alliances began to be more prominent in supply chain research.Early research examined what contributes to successful alliances and partnerships.

The focus on alliances and partnerships gradually evolved into the more general topic of collaboration.

Initial research sought to define collaboration and establish its benefits. Empirical research followedthat identified antecedents to collaboration and also the three constructs of behaviors, culture and

relationship interaction. Though much has been done, Daugherty outlines numerous opportunities for

further research. General ideas on the following topics are discussed below.

1. Partnerships/alliances/collaborative relationships Though many of these work, many others failor fall short. Research needs to be done to identify if this is due to current models or external

effects such as the economic downturn. It might be productive to look at more than just a onebuyer-one seller relationship. Another potential topic is how relationships are maintained over

time to ensure that they remain healthy and worthwhile.

2. Improving chances of success Selective matching is already known to be an important factor,but if personal relationships are important, how is this managed to ensure success? Is it better to

make purposeful decisions regarding personnel or to create cross-firm teams? How do cultural

differences influence success?

3. Has the issue of power gone away? Are there principles that can be used to safeguard thesmaller partner and still encourage good relationships?

4. Metrics and monitoring What are the most important metrics in measuring trust? Are thesestatic or variable over time? Monitoring requires accountability. Is it possible to develop astandard approach to monitoring relationships? If not, are there certain elements that contribute

to success?

5. Innovation There is a surprising lack of literature on logistics-focused innovation. One area ofpotential interest is the science of service and service innovation (Ostrom et al 2010).
mailto:[email protected]:[email protected]://search.proquest.com/docview/846768440?accountid=130991http://search.proquest.com/docview/846768440?accountid=130991http://search.proquest.com/docview/846768440?accountid=130991mailto:[email protected]


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6. Technology This includes research into how to prepare for future technologies and how to bestuse current ones in terms of increasing efficiency and cross-firm integration. It also involves

investigating which technologies are the best in terms of improving performance.

7. Focus on service Many current models focus on products rather than services, yet manyeconomies depend more on service related industries. Research could examine the pricing andvaluing of service, service branding, creating a service culture, and all of the relationships

involved in these processes. This area invites collaboration with researchers outside of the

business department.

Although much has been documented regarding relationships, there are clearly many more

opportunities to do more.


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Title: Supply Chain Trust is Within Your Grasp

Journal: Supply Chain Management Review, 2004, March, pp. 20-26

Authors: Stanley E. Fawcett, Gregory M. Magnan, Alvin J. Williams

Key Words: trust, interorganizational relationships, supply chain management


Overview: Trust is recognized as a key factor in improving supply chain collaboration. This paper

argues that the gap between this recognition and its application is wide as evidenced by the consistent

complexity of contracts between collaborators. Surveys and case studies provided the data for thisresearch. The case studies were based on interviews with managers from various industries that

represented all points along a supply chain. Through this process, the researchers sought to extract the

participants views on trust and collaboration. From the responses, five dimensions of trust are

explained offering a pathway to developing and strengthening trust in collaborations.

The Performance Dimension For trust to exist, there must be performance. This means that companiesmust consistently fulfill commitments. Survey responses revealed that promises made by another

company are often doubted and routinely reduced by a set amount before decisions are made whether or

not to proceed in order to compensate for the tendency to overpromise. It is clear that keeping promises

will increase trust.

The Information-Sharing Dimension All information pertinent to a relationship or project must beopenly shared for true trust to exist. This includes sharing sales data, forecasts, production plans and

new product information. Some companies use quarterly business reviews or other opportunities to

ensure that this happens regularly. The joint use of computer systems is not necessarily indicative of

trust and can backfire if it is seen as an attempt to gain an advantage.

The Behavioral Dimension Behaviors that foster trust include the sharing risks and benefits and

investment in a partners capabilities, In fact, how well risks and benefits are shared is one of the most

powerful indicators of trust. It is important that buyers treat suppliers well and assume some of the riskwhen certain expectations are laid out. Investing in supply chain partners demonstrates that the

relationship is important.

The Personal Dimension Trust inherently relies on personal relationships. Buyers and suppliers may

not trust each others respective companies, but they must trust each other. These types of relationships

can be encouraged through more one-on-one interaction, customer and supplier visits, and stable

account management teams.

The Two-Worlds Dimension This dimension describes the fact that suppliers are generally more

dissatisfied with the level of trust than buyers. The reason? Power. When power is skewed, trust is

harder to establish.

For companies wanting to build trust these five dimensions can be applied using the following five

behaviors:

1. Keep promises made.2. Rely on open, not selective communication.


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3. Employ behaviors that show the other party is valued.4. Build personal relationships.5. Ensure that relationships are fair and mutually beneficial.

An assessment of a companys culture of trust may also help direct future decisions. This must be done

from and internal and external perspective to be valid. An outline of one way to carry out this type of

assessment is shown in exhibit 2.


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Title: A three-stage implementation model for supply chain collaboration

Journal: Journal of Business Logistics, 2008, Vol. 29 No. 1, pp. 93-113

Authors: Stanley E. Fawcett, Gregory M. Magnan, Matthew W. McCarter

Key Words: change management, transformational leadership, supply chain collaboration, qualitative

study, in-depth interviews


Overview: This article explores the key question of how a firm can successfully undergo the

transformational process towards a supply chain orientation. Building on Lewins force theory, authors

Fawcett et.al. depict a three-stage transformational process by which firms can achieve suchtransformation. The first stage is called unfreeze this includes the initial awareness of the need for

change and a conscious willingness to do so. Often such awareness arises out of crises or leadershipchange. The second stage is called movement and is the unsteady, transformational state where afirm begins its initial foray into the change. Pilot projects are often used to vet out the pros and cons of

the change and also generate the needed evidence so that management can more effectively evangelize

the virtues of the proposed change. The third and final phase is called refreeze and is the process by

which the change becomes institutionalized and refined.

The authors conducted 51 in-depth interviews of firms across four different supply chain positions:retailers, finished-goods assemblers, direct material suppliers, and logistics service providers. The

purpose of the interviews was to explore what practices firms used in pursuing successful collaborative

relationships with their supply chain partners. A list of 25 of the top practices and requirements ispublished in the paper. The list is broken down into six key categories and include: management

commitment, supply chain mapping and role definition, information sharing and system integration,people management and development, supply chain performance measurement and relationshipmanagement/trust building. While many of the firms were found to be engaged in implementing a

number of the listed practices, most found the change management process challenging. The interviews

suggested that the lack of collaboration is not a result of inadequate initiative, but rather a lack of

maturity in managing the change process (pg.105).

The findings of this paper hint that the key to success lies perhaps in better understanding the underlyingcorporate culture that drives the attitudes and perceptions of employees in implementing supply chain

collaboration in their firms. A study of best practices alone may not yield the necessary explanations of

what leads to success and what leads to failure in this endeavour. One key example related to this

Ontario Institute special issue is the implementation of trust in business relationships. Anytransformational efforts to increase the use of trust in business relationships is most likely going to

require a cultural transformation as opposed to a more concerted effort to implement any specificpractice. This article lays the groundwork for follow-on studies that may want to take a more focused

approach on the role of culture in achieving supply chain collaboration transformation.


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Title: The Indispensable Supply Chain Leader

Journal: Supply Chain Management Review, 2010, September/October, pp. 22-29

Authors: Stanley E. Fawcett, Joseph C. Andraski, Amydee M. Fawcett, Gregory M. Magnan

Key Words: trust, supply chain leader, cross-functional


Overview: The authors introduce the concept of an indispensable supply chain leader, This individual

possesses more than the requisite knowledge and skills to carry out supply chain processes. He also

possesses a mindset and perspective that allow him to coordinate the supply chain effectively. This type

of leader is extremely hard to find as interviews with 112 companies in Asia, Europe and the U.S.

revealed. Four characteristics of these indispensable leaders are described.

First of all, an indispensable supply chain leader can be described as a cross-functionalist. This involvesmore than just functional skills and encompasses the ability to lead a collaborative effort. This type of

person is critical to improving supply chain collaboration in general. To develop cross functionalistemployees, companies take one of several approaches keeping in mind that the goal is to provide

exposure, experience, and responsibility along the entire supply chain. Some companies have long-term

training programs where new hires are rotated to a new function or area with more supervisory authority

after a period of 1-2 years. The drawback is that many firms do not have 10 years to fully invest in anemployee. Another option is fast-track cross-experiencing that reduces the length of the program to 2

years. Other companies are trying out rotations that last 3-6 months and cover all the basic areas within

the business. One more option is to involve managers in task forces and projects outside of his normalresponsibilities. It is important to note that companies must beware of competitors that try to poach

these supply chain leaders.

Indispensable supply chain leaders are also choreographers; they are able to select the right personnel

and get them to work together efficiently. Choosing the right people is a skill that many possess.

Orchestrating the group is more difficult as it relies more on creativity and intuition.

Another role of the indispensable supply chain leader is that of coach. This incorporates teaching and

motivating as well as correcting. The ability to perform these tasks well relies on trust. In particular,

those involved must trust that the coach has their best interests in mind. A person with this skill set is

especially difficult to find today, but is critical to effective collaboration. Coaching must not be

confused with control.

The last character is that of champion. Supply chain champions possess a strong work ethic, creativity

and personal influence based on credibility. Because of this, they are highly successful in teams or

when delegating tasks to others. Successful champions share four behaviors. They scan constantly,take proactive risks, create safe harbors, and cultivate and celebrate successes. These behaviors lead to

greater trust and better performance.

Cultivating indispensable supply chain leaders may be a scary prospect, but it can be done. Many

companies are taking steps to develop these types of employees. Doing so will lead to better

collaboration, increased trust and improved performance.


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Title: Interorganizational trust, governance choice, and exchange performance

Journal: Organization Science, 2008, Vol. 19 No. 5, pp. 688-708

Authors: Ranjay Gulati and Jack A. Nickerson

Key Words: interorganizational relations, supply chain trust, transaction cost economics, case study,

switching regression


Overview: Williamson (1991) argued that firms organize their resources according to a myriad of

determinants that include the costs associated with supplier search, contract generation and contractenforcement. Firms can choose one of three methods: buy product x from the market, ally with a firm

(alliance or joint venture) to make product x or make product x internally. Williamson recognized that

interorganizational trust could serve to reduce the costs associated with developing and enforcing

contracts associated with the three options. Since Williamsons early work, many studies have been

conducted that empirically confirm Williamsons theory of transaction cost economics. These studieshave also given rise to an interesting debate: some argue that trust can serve as a substitute for contracts

while others argue that trust serves as a complement to contracts.

In this article, Gulati and Nickerson explore the two sides of the trust debate and hypothesize that trustcan serve as both a substitute and as a complement to contracts under certain conditions. At the

condition where a firm is marginally disposed towards one of the three organization structures, trust may

reduce transaction costs sufficiently to sway the decision to another structure. In this case, trust serves

as a substitute. Further, the authors argue that irrespective of governance choice, all interorganizationalrelationships benefit from trust given the reduced operating costs and risks assumed. In this sense, trust

is a complement to contracts as it improves the operational efficiency of the dyad by decreasing cost.

In order to test their hypotheses, Gulati and Nickerson use data from a survey of 222 sourcingarrangements at 2 large automotive OEMs (Ford and Chrysler). Additionally, the authors conduct in-depth case studies to refine their survey instrument. Using switching regression, they find empirical

support for their hypotheses and confirm that trust can serve both as a substitute and a complement to

contracts bv min interorganizational relationships.


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Title: Suppliers affective trust and trust in competency in buyers

Journal: International Journal of Operations & Production Management, 2011, Vol. 31, No. 1, pp. 56-77

Authors: Byoung-Chun Ha, Yang-Kyu Park, Sungbin Cho

Key Words: trust, suppliers, buyers, supply chain management, korea


Overview: This study examines trust and its effect on supply chain collaboration and logistics

efficiency. It differs from previous studies in two ways. First, trust is examined from the viewpoint of

supplier not buyers. Second, trust is divided into two categories: affective trust and trust incompetency. Affective trust encompasses the emotional aspects of a long-term, inter-personal

relationship such as openness, positive mutual understanding, honesty, and respect. Trust in

competency refers to the expectation of certain behaviors based on the knowledge, and expertise of the

other party. This includes business capability, a willingness to accept partners expertise, and unique

knowledge/skills. The construct of logistics efficiency was used to measure overall performance andcollaboration based on five categories: order fill rate, order fulfillment lead time, operations flexibility,

inventory turnover, and total logistics cost.

Data was collected using surveys of supply chain managers within Korean companies that functioned assuppliers. These companies represented many different industries. Path analysis, using PROC CALIS

was applied to examine the effects of affective trust and trust in competency on the three dimensions of

supply chain collaboration, which are joint decision-making, information sharing, and benefit/risk

sharing. Then, the effect of these three dimensions on logistics efficiency was investigated. Allconstructs satisfied the condition of the standardized Cronbach alpha value being greater than or close to

0.7 thus showing them to be reliable. Confirmatory factor analysis indicated that the proposed model

was valid.

Data analysis showed that affective trust had a significant impact on supply chain collaboration withrespect to information sharing. Trust in competency had an effect on joint decision-making. Both types

of trust influenced benefit/risk sharing. Joint decision making and information sharing in turn affected

logistics efficiency. The three relationships between affective trust and joint decision-making, trust incompetency and information sharing, and benefit/risk sharing and logistics efficiency were shown to be

insignificant. These results are not general since the scope of the study was limited to a particular

region. Further analysis is required to see if the model applies generally. Other potential areas of

research would take into account cultural effects and power relationships between suppliers and buyers.


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Title: Benchmarking trust signals in supply chain alliances: moving toward a robust measure of

trust

Journal: Benchmarking: An International Journal, 2010, Vol. 17 No. 5, pp. 705-727

Authors: Stephen L. Jones, Stanley E. Fawcett, Amydee M. Fawcett, Cynthia Wallin

Key Words: trust, supply chain management, collaboration, measuring trust


Overview: This paper accomplishes three main objectives: 1) it provides an overview of how

interorganizational trust has been measured in past supply chain research, 2) it proposes two differentdimensions of trust that have previously been combined into a single construct, and 3) it empirically

highlights five different signals that firms can use to build trust with supply chain partners.

Authors Jones et.al. first discuss the two key dimensions of trust: competence and goodwill.

Competence trust exists when a firm believes in the capabilities of another firm to execute according tocontract. This belief is either supported or weakened through repeated delivery and paymentperformance that either confirms or disconfirms the initial belief. Goodwill trust, however, concerns the

belief of a firm that the other firm desires fairness in all outcomes and will work to maintain that fairness

irrespective of the opportunities that exist to do otherwise. These dimensions are considered orthogonaland should be measured separately. Jones et.al. list five prior supply chain papers published that mix

these dimensions of trust and argue that future research in supply chain trust should incorporate this

consideration.

The authors present a 2X2 matrix that has as its axes the two dimensions of trust where each dimension

is divided into two groups, adequate and outstanding. They discuss the relevance of each of thequadrants. Of key interest is the quadrant where both competence and goodwill trust are outstanding.

This scenario, the authors argue, is what is needed to achieve the breakthrough collaborative trust that sofew firms are able to achieve.

Trust signals are presented as actions that firms can take in order to increase trust in the relationship.These signals include: 1) performance to promise, professional relationships, openness, benevolent

collaboration and empathy. A survey of 189 firms is used to empirically assess the general areas of

strength and weakeness across these five signals. The authors confirm that collaborative trust remains

elusive and is best achieved when firms develop both dimensions of trust using all signals. The two

signals that set the top performers apart are benevolent collaboration and empathy.

This paper presents some important considerations for those engaged in supply chain trust research,

however the paper is not without some weakness. The paper does not pull from the rich knowledge basealready developed in sociology and economics on the role of trust in business relationships. It could bestrengthened by this theoretical exploration. Additionally, while descriptive statistics are provided on

the survey results, no correlation or covariance matrix is provided thus not enabling readers to study the

data for themselves.


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Title: Measuring trust in supply chain partners relationships

Journal: Measuring Business Excellence, 2010, Vol. 14 No. 3, pp. 53-69

Authors: Mohammed Laeequddin, B.S. Sahay, Vinita Sahay, K. Abdul Waheed

Key Words: trust; measurement; supply chain management, conceptual


Overview: This conceptual article proposes a methodology for analyzing trust based on a risk-

management framework. The papers key tenant is that trust is the assumption of acceptable risk and

where risk is not acceptable, trust should not exist. Where no risks exist, perfect trust can exist. Whererisk exists but is at an acceptable level (anticipate benefits exceed anticipated negative repercussions)

then the situation can be considered worthy of trust, or in the authors words, trust-worthy. Where

risk exceeds anticipated benefits, no trust should exist. The authors propose taking the multiple

categories of trust and scoring each from a scale of 1 10 and then categorizing them in the three

groupings just discussed.

A major strength of this paper is its review of the extant literature across various fields such as

psychology, sociology and economics. The authors provide over 40 unique definitions and statements

regarding trust including their respective citations. This is perhaps one of the best definitional surveyspublished on this topic. In addition to the definitional survey, the authors also provide a table that lists

12 different papers that measured trust and the exact measure used for those studies.

The analysis of trust through the lens of risk management is an interesting proposition and has merit of

consideration in future supply chain management research. The focus, however, that trust can be

quantified has its limitations. What the authors do not recognize is that very few, if any businessmanagers will actually sit down to run a calculation to determine whether or not they should trust a

supply chain partner. Behavioral economics has offered this same challenge to traditional economicsand the concept of bounded rationality and other behavioral considerations have an important place in

such a debate.
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