Decision Sciences

Volume 29 Number 3
Summer 1998
Printed in the V.S.A.

Success Factors in Strategic Supplier

Alliances: The Buying Company Perspective*
Robert M. Monczka, Kenneth J. Petersen, Robert B. Handfield,
and Gary L. Ragatz
The Eli Broad Graduate School of Management, Department of Marketing and Supply Chain
Management, Michigan State University, East Lansing, MI 48824-1121

ABSTRACT
The emerging area of supply chain alliances has received considerable attention in the
academic and managerial press, yet there are many unanswered questions regarding the
dynamics of such relationships. A number of such fundamental issues drive this
research initiative, including how alliances are developed, their key success factors, and
the specific benefits to be achieved. The study begins by establishing a definition of stra-
tegic supplier alliances, based on a comparison of both theoretical and managerial
descriptions. The critical antecedents associated with the success of strategic supplier
alliances are next developed, and the magnitude of the effect of these factors on partner-
ship success is assessed. The analysis employs both qualitative and quantitative data,
collected through an electronic network of over 200 companies, as part of an ongoing
benchmarking initiative in supply chain management.
From the perspective of the buying company in the alliance, the following
attributes of supplier alliances were found to be significantly related to partnership suc-
cess: trust and coordination, interdependence, information quality and participation,
information sharing, joint problem solving, avoiding the use of severe conflict resolu-
tion tactics, and the existence of a formal supplierkommodity alliance selection process.
Resource commitment and smoothing over problems were found to be poor predictors
of alliance success. The implications of these results for managerial decision making in
supplier alliance development are discussed.
Subject Areas: Linear Regression, Purchasing, and Supply Chain Management.

INTRODUCTION
The study of interorganizational relationships has been the subject of many articles
over the past several years (Landeros & Monczka, 1991; Mohr & Spekman, 1994;
Smith, Carroll, & Ashford, 1995; Spekman, 1988). One type of interorganizational
relationship, between purchasing organizations and their independent suppliers,
has been of particular interest. Authors have emphasized that closer buyer-supplier

*Research support provided by the Global Procurement and Supply Chain Benchmarking Initiative at
Michigan State University.

553
554 Success Factors in Strategic Supplier Alliances

relationships may offer many technical, financial, and strategic advantages over
spot market transactions and vertical integration (Gulati, 1995;Mohr & Spekman).
However, there appear to be some common misunderstandings regarding the
deployment and expected benefits associated with strategic supplier alliances.
Recent studies on interorganizational cooperation have noted the need for research
that describes how parties are brought together in cooperative alliances, the
dynamics of interorganizational cooperation, and the performance implications of
strategic alliance development (Smith et al.).
Empirical evidence that captures the direct and indirect benefits of strategic
supplier alliances is relatively scarce. A number of individual case studies identify
some of the critical attributes associated with strategic alliances, including the
existence of trust, co-location, asset specificity, information sharing, and other
conflict management factors (Gambetta, 1988; Lewis & Weigert, 1985;McAllister,
1995; Monczka & Trent, 1991; Nishiguchi, 1994; Yoshino & Rangan, 1995).
Mohr and Spekman (1994) developed appropriate measures for these attributes
and have tested them within the context of dealer-supplier channel transactions.
However, the latter study is lacking in a number of respects. First, this study (Mohr
& Spekman) investigated the relationship between a computer dealer and one
manufacturer (supplier), focusing on the dealer’s perceptions of the relationship.
Industrial purchasing relationships are often much more complex than consumer
market channels and involve joint sharing of new technology, cost savings, sup-
plier development, and other characteristics (Handfield, 1993b). Such transactions
often possess a greater number of structural characteristics and, therefore, may
require a very different type of buyer-supplier relationship. Second, Mohr and
Spekman identified only one specific measure of success related to the success of
the alliance. The analysis failed to include measures of cost reduction, quality,
access to technology, cycle time or new product development time, which are
potential outcomes in an industrial “strategic supplier alliance.” Finally, Mohr and
Spekman examined alliance relationships in a single industry, potentially limiting
the generalizability of their findings.
These gaps are addressed in our study through a unique method of data col-
lection. The method employs both qualitative and quantitative data, collected
through an electronic network of over 200 companies representing a wide range of
industries, as part of an ongoing benchmarking initiative in procurement and sup-
ply chain management.
We begin by establishing a definition of strategic alliances, based on a com-
parison of both theoretical and managerial descriptions. The critical antecedents
associated with the success of strategic supplier alliances are then described,
including attributes of the relationship (commitment, trust and coordination, and
interdependence), communication behavior (information quality/participation,
and information sharing), conflict resolution techniques, and commodity/supplier
selection processes. Based on measures developed by Mohr and Spekman (1994),
we then test the magnitude of the effect of these factors on partnership success as
perceived by the buying company. Finally, the implications of this study for future
theory development in strategic supplier alliances are discussed.
Monczka, Petersen, Handfield, and Ragatz 555

THEORY DEVELOPMENT
The study of interorganizational relationships (IORs) spans many years. It was
noted early in the development of this field that IORs vary widely in their struc-
ture, ranging from simple transactions through formal alliances. The possible
domain of interfirm linkages is shown in Figure 1 (Yoshino & Rangan, 1995), with
the potential range for strategic alliances spanning nontraditional contracts, equity
arrangements with no new entity created, and nonsubsidiary joint ventures. Stra-
tegic alliances are unlike simple buy-sell arrangements, which involve no long-
term mutual dependence, shared managerial control, or continuing contributions
of technology and products.
True strategic alliances are also different from joint ventures, in which a sub-
sidiary is created. Strategic alliances require that the following necessary and suf-
ficient conditions be present (Yoshino & Rangan, 1995):
1. Independence of the parties.
2. Shared benefits among the parties.
3. Ongoing participation in one or more key strategic areas, for example,
technology, products, markets, etc.
The focus of this study is on alliances that fall into the “nontraditional con-
tracts” classification, in which transactions take place between buyers and suppli-
ers of industrial goods and services. This type of alliance is defined as a
“procompetitive alliance,” in that it consists of an interindustry, vertical value-
chain relationship between manufacturer/serviceproviders and their suppliers/dis-
tributors (Yoshino & Rangan, 1995). In most cases, these alliances seek to add
value, increase flexibility, and allow the company to focus more on its own core
competence.
Some studies have examined the antecedent business conditions that lead to
different types of strategic supplier alliances (Dwyer, Schurr, & Oh, 1987;
Mahoney, 1992; Zajac & Olsen, 1993). These studies suggest that the type of
assets involved will influence the nature of alliances and relationships (Itami,
1987; Teece, 1986). Other studies have also linked the nature of relationships to
environmental uncertainty and resource interdependence (Hayes & Pisano, 1994;
Pfeffer & Salancik, 1978).Fewer studies have focused on the process of how long-
term interorganizational relationships unfold. Ring and Van de Ven (1994) pro-
posed a process framework that balances formal (economic and legal) and infor-
mal (social-psychological) factors to sustain long-term interorganizational
relationships. Only a few empirical studies have explored the formation and evo-
lution of interorganizational relationships (Gulati, 1995; Handy, 1995; Mohr &
Spekman, 1994).
In our study of strategic supplier alliances, we asked managers in the sample
of 77 responding organizations to provide their own definition of a strategic alli-
ance. The following working definition of a strategic supplier alliance was devel-
oped from the analysis of responses:
Strategic supplier alliances are long-term, cooperative relationships designed
to leverage the strategic and operational capabilities of individual participating
556 Success Factors in Strategic Supplier Alliances

Figure 1: Range of interfirm links.

Interfin Links I

, Contrad;lAgreemen- , Equ~A~enwnta ,
I
~

\ No’ NOWEntity Creation of Entity

Traditional /fiontradltional
,-, DiMOlutiOn

I t
ofEntity
NonsubsMiary
Joint Ventures z::$Lr
Franchising
Joint Produd
Development
I of MNC
LMergerd ~

FW-W and
Joint Acquhltions ~

Eqw Ventures
Joint Manufadunng Swaps

Joint Maheling I- Unequal

Equity
Shared Distnbutionl Joint
Ventures
Standards Setling/
Research Consorti

(Yoshino & Rangan, 1995, p. 8)

companies to achieve significant ongoing benefits to each party. These

alliances continue as long as significant value accrues to both parties. Among
the primary benefits of such relationships are enhanced supply chain
synchronization, total cost reduction, improved quality and cycle time and a
strengthened overall competitive position, which exceeds the contributions
possible from other traditional relationships. (GEBN,1995)
This definition has several elements that distinguish strategic supplier alli-
ances from simple long-term partnerships. First, a strategic alliance involves more
than just payments from the buyer in exchange for products or services from the
supplier. Purchasing organizations typically buy not only their suppliers’ products
or services, but also their suppliers’ systems and capabilities (which in turn
requires high levels of coordination). Second, the relationship exists as long as
both parties perceive that they are obtaining value. Finally, it is important to note
that the criteria for measuring the success of an alliance include both soft (e.g.,
competitive technology, supply chain integration) and hard (e.g., cost, quality, and
cycle time) measures of success. These performance improvements are expected
to exceed the performance improvements possible under conditions of a “regular”
long-term contract.
Using this grounded definition as a basis for the study, we employed a mea-
surement system developed by Mohr and Spekman (1994) in testing a model of the
factors that lead to a successful strategic supplier alliance. In our model we posit
that successful strategic alliances can be developed by managing attributes of the
relationship, communication behaviors, conflict resolution mechanisms, and com-
modityhupplier selection processes. We test the impact of such practices on both
perceptual and objective measures of strategic supplier alliance success from the
Monczka, Petersen, Hand$eld, and Ragatz 557

buying company’s perspective. In the next section, we develop a set of hypotheses

delineating these proposed relationships.

HYPOTHESES
The strategic and purchasing management literature suggests a number of hypoth-
eses regarding the formation and performance characteristics of interorganiza-
tional relationships. The following set of hypotheses are derived assuming that the
unit of analysis is the primary buying company’s relationship with a single supplier
with whom the buying company has established what it considers to be a strategic
alliance. We make no attempt to identify the perceptions of the corresponding sup-
plier representatives. Our model is discussed in the following sections and is
shown in Figure 2. We begin by examining the factors that lead to the formation
of strategic supplier alliances and then focus on how these factors influence per-
formance outcomes.
Our hypotheses focus on four major dimensions of the alliance posited to be
predictors of success: attributes of the alliance, communication behavior, conflict
resolution techniques, and commodity/supplierselection process.

Attributes of the Alliance

Strategic alliances require a different approach to managing buyer-supplier relation-
ships. The importance of relationship management is evident in the extant literature,
which focuses on commitment, trust, coordination, and interdependence as impor-
tant attributes of the relationship (Anderson & Narus, 1990; Dyer, 1994; Frazier,
Gill, & Kale, 1989;Handy, 1995; Nishiguchi, 1994; Ring & Van de Ven, 1994).

Commitment
Commitment refers to the willingness of buyers and suppliers to exert effort on
behalf of the relationship. Commitment to a relationship is most frequently dem-
onstrated by committing resources to the relationship, which may occur in the
form of an organization’s time, money, facilities, etc. These types of resources are
often referred to as “asset specific” resources, in that they are directed specifically
towards the other party.
The influence of asset specificity on insourcing/outsourcing decisions was
originally described by transaction cost theorists (Williamson, 1975, 1985). Only
recently have theorists described how the commitment of assets can influence the
nature of interorganizationalrelationships. Several studies have found a relation-
ship between resource commitment and the joint action or continuity between par-
ties within interorganizational relationships (Friedmen, 1991;Heide & John,’1990;
Yoshino & Rangan, 1995). These results suggest that successful alliances result
when both buyers and suppliers demonstrate a willingness to commit a variety of
assets to a set of future transactions.

Trust and Coordination

McAllister (McAllister, 1995) concluded that trust occurs in two forms. One of
these has its roots in reliable role performance, cultural-ethnic similarity, and
558 Success Factors in Strategic Supplier Alliances

Figure 2: Supplier alliance research model (adapted from Mohr & Spekman, 1994).

Commodii/Supplier Selection R ~ S S
*SupplimAswsment/Selection
*Commodity/Purchase Item Selection
I

professional credentials, whereas the other has its roots in “citizenship” behavior
and interaction frequency. Both forms are found to enhance coordination by low-
ering administrative costs. Trust has also emerged as an important component of
alliances, and several studies confirm the importance of trust and coordination in
cooperative relationships (Pilling & Zhang, 1992; Smith & Aldrich, 1991; Smith
et al., 1995).

Interdependence
Interdependence exists when one actor does not entirely control all of the condi-
tions necessary for achievement of an action or a desired outcome. Resource
dependence theory (Emerson, 1962; Pfeffer & Salancik, 1978) specifies the con-
ditions under which one social unit is able to obtain compliance with its demands
when interdependence is present. These relationships have been explored in
empirical studies, which investigate the relationship between dependence and con-
trol in buyer-supplier relationships (Handfield, 1993a). For instance, Provan and
Skinner (1989) found that dealers of agricultural equipment were less opportunis-
tic when they depended on a primary supplier, whereas suppliers with greater con-
trol over dealers’ decisions exhibited greater opportunism. Resource dependence
can also influence other outcomes, including supplier JIT delivery performance
(Handfield, 1993a).
The literature cited above suggests that successful strategic alliances are
expected to be characterized by higher levels of commitment, trust and coordina-
tion, and interdependence. Our first hypothesis (H 1) asserts that successful strate-
gic supplier alliances are associated with high levels of (a) commitment, (b) trust
and coordination, and (c) interdependence.
Monczka, Petersen, Handfield, and Ragatz 559

Communication Behavior
Communication processes and the sharing of information are fundamental to most
aspects of organizational functioning (Kapp & Barnett, 1983; Mohr & Nevin,
1990). Two aspects of communication behavior that address the extent to which
the information exchanged is effective in an alliance include information sharing,
and the level of information quality and participation. Both of these aspects of
information sharing (quantity and quality) are required to successfully develop
supplier alliances.

Information Sharing
Information sharing refers to the extent to which critical and proprietary informa-
tion is communicated to one’s supply chain partner (Mohr & Spekman, 1994). For
instance, details of the supplier’s financial health, level of debt, ability to grow, and
overhead cost structure are required in order to effectively plan future purchases
and growth within the alliance (Burt, Norquist, 8z Anklesaria, 1990). In some
cases, purchasing may become involved in the supplier’s processes by assigning a
supplier development team to work jointly with the supplier’s engineers in
improving the processes (Krause, 1995). Suppliers who have difficulty in produc-
ing to engineered specifications can suggest changes that may lead to quality or
cost improvements (Bhote, 1987; Clark, 1989).

Information Quality and Participation

Information quality includes such aspects as the accuracy, timeliness, adequacy,
and credibility of information exchanged (Daft & Lengel, 1986; Huber & Daft,
1987). Information participation refers to the extent to which partners engage
jointly in planning and goal setting (Mohr & Spekman, 1994). These two informa-
tion attributes are closely related in a strategic supplier alliance and are critical in
enabling both parties to coordinate their activities. For instance, the purchasing
executive must commit to providing better and more accurate forecasts of require-
ments to suppliers, in order to allow them to plan their available capacity more
effectively (Chapman & Carter, 1990; Handfield, 1993a; Im & Lee, 1989; Raturi,
Meredith, McCutcheon, & Camm, 1990). Thus, our second hypothesis (H2)
asserts that successful strategic supplier alliances are associated with high levels of
(a) information sharing and (b) information quality and participation.

Conflict Resolution
Conflict inevitably occurs in any type of interorganizational relationship over an
extended period of time. The manner in which conflict is resolved has direct impli-
cations for the success and continuity of the relationship. Conflict resolution ori-
entations have been classified as avoiding, accommodating, competing,
compromising, or collaborating (Deutsch, 1969; Hergert & Moms, 1988; Patterson
& Handfield, 1996; Thomas, 1977).
Constructive conflict resolution techniques focus primarily on joint elimina-
tion of the conflict or persuasion (Cummings, 1984; Deutsch, 1969). This form of
behavior is more likely to result in positive outcomes, as joint efforts are applied to
560 Success Factors in Strategic Supplier Alliances

find an integrative, synergistic solution when the conflict concerns of buyers and
suppliers are considered too critical to the outcome of the relationship to be com-
promised.
A second type of conflict resolution technique involves smoothing over or
ignoring/avoiding the issues (Ruckert & Walker, 1987). Generally speaking,
avoiding or smoothing over the problem does not eliminate the source of the prob-
lem, resulting in a renewed or even larger scale conflict at some point in the future
(Patterson & Handfield, 1996).
Destructive forms of conflict resolution involve coercive influences that
firms use with alliance partners, including threats, promises, and legalistic pleas
(Frazier et al., 1989).All of these can prove to be harmful to the relationship.Thus,
our third hypothesis (H3) states that successful strategic supplier alliances are
associated with:
a. high use of constructive conflict resolution techniques, including joint
problem solving and persuasion;
b. low use of conflict avoidance techniques, including smoothing/avoiding
issues; and
c. low use of destructive conflict resolution techniques, including harsh
words and outside arbitration.

Commodity/Supplier Selection Processes

Prior studies suggest that a formal commodity selection process, followed by a for-
mal supplier selection process, can increase the likelihood that alliances are
formed in appropriate situations and that the right partner is chosen for the alliance
(Handfield, 1993b; Monczka & Trent, 1995; Monczka, Trent, & Callahan, 1993;
Spekman, 1988). The first goal is to identify whether an alliance is an appropriate
mechanism for achieving the objectives of the commodity strategy, and if so, to
ensure that the alliance objectives are linked to the procurement strategy and busi-
ness unit strategy (Monczka 8z Trent, 1995). Before developing a long-term rela-
tionship with a supplier, the buying company must ensure that the supplier is
capable of improvement in key areas, and is willing to develop a close, longer term
working relationship with the buying unit. Based on these premises, our fourth
hypothesis (H4) posits that successful strategic supplier alliances are associated
with the existence of a formalized commodity and supplier strategy process.

METHODS

Data Collection: Context and Sample

The data in this study were collected as part of a questionnaire focusing on strate-
gic supplier alliances. A total of 84 out of 205 GEBN member companies
responded to the questionnaire (a 41% response rate) and 77 of these responses
were deemed usable.
The companies were located in the United States, Canada, Mexico, Western
Europe, and Australia. The average annual sales for 1994reported by the respondents
Monczka, Petersen, Handfield, and Ragatz 56 1

was $7 billion whereas the average annual purchases reported for 1994 was $2.5
billion.
The individual respondents were procurement professionals who provided
data on their companies’ experience as a customer in strategic supplier alliance
relationships with its suppliers. The unit of analysis in this study is the strategic
alliance established between a respondent company and one of its strategic alli-
ance partners. Each respondent provided data on his or her company’s most and
least successful strategic alliance, yielding two independent observations. The
final sample size was 154 alliances.

Measurement Development
All of the measures (with the exception of the supplier and commodity selection
processes) were based on measures validated by Mohr and Spekman (1994), and
all measures were taken from the perspective of the customer in the alliance. To
ensure face validity (Cook & Campbell, 1979), all measures were thoroughly
examined by a group of industry executives and subject-area experts. Of the inde-
pendent variables, five were multi-item constructs, including trust and coordina-
tion, interdependence, commitment, information quality/participation, and
information sharing. In addition, five single-item independent variables were used,
representing conflict resolution approaches, and include joint problem solving,
persuasive attempts, smoothing over, harsh words, and outside arbitration. A 2-
item scale was used to measure the existence of a formal commodity/supplier
selection process. Three types of measures were used to assess the extent to which
each alliance was successful. Two of these measures were perceptual, whereas the
third involved objective supplier measures of alliance performance.
The first measure of alliance success included how well the alliance partners
worked together, how flexible each alliance partner was to requests made by the
other partner, whether each partner would help the other in an emergency, the like-
lihood that each partner would fill a requirement based on a prespecified agree-
ment, and the overall satisfaction with the alliance.
The second measure of alliance success assessed the buying company’s sat-
isfaction with the alliance. The respondents were asked to indicate their overall
satisfaction with all of their strategic supplier alliances as well as their overall sat-
isfaction with the specific strategic supplier alliance for which they were respond-
ing. The difference between these two satisfaction scores was taken to provide an
indicator of alliance success (adjusted for the relative success of all supplier alli-
ances within that company). The calculation of this measure is described further in
the Appendix.
Finally, we sought to assess alliance success by examining several specific
performance dimensions. Respondents were asked to identify the primary reasons
they formed their strategic alliances with suppliers. The dominant reasons, as
shown in Table 1, were: to leverage purchase volume and control total cost,
improve purchased material quality, gain better access to new product or process
technologies, reduce time-to-market, and reduce order cycle times. The respon-
dents were also asked to estimate the percentage improvements their company had
achieved on each of these dimensions through each of the strategic alliances they
were reporting on.
562 Success Factors in Strategic Supplier Alliances

Table 1: Key objectives in forming strategic supplier alliances.

Rank Objective
1 Leverage purchase volume and control total cost
2 Improve purchased material quality
3 Gain better access to new product/process technologies
4 Reduce time-to-market
5 Reduce order cvcle times

STATISTICAL ANALYSIS
An important issue, before dealing with the adequacy of our model, is the question
of what results can be achieved through strategic supplier alliances. As noted above,
the companies responding to our survey form alliances to achieve specific objec-
tives (see Table 1). The respondents reported that overall, they are satisfied with
their alliances (see Figure 3). indicating they find supplier alliances beneficial.
Not all alliances are equally effective, however. Each company provided
data on both its “most successful” and “least successful” strategic alliance. Results
in the five key performance areas indicate that on average, the companies’ most
successful alliances resulted in substantial improvements, but other alliances
yielded poorer results and, in some cases, negative results (see Table 2). This sug-
gests that strategic supplier alliances, although potentially useful, are not automat-
ically beneficial. Our model seeks to identify the critical processes in achieving
successful strategic supplier alliances.
All variables in the model were successfully measured. The means, standard
deviations, and correlation coefficients are presented in Table 3. The variables
were visually inspected for outliers, and Cook’s/Mahalanobis difference tests were
used to assess the distributions. One significant outlier was detected in the sample
and was excluded from further analysis.
The extent of convergent validity for the trust and coordination, interdepen-
dence, commitment, information quality and participation, and information shar-
ing constructs was assessed through the use of principle components factor
analysis with varimax rotation. Each of these multi-item measures was assessed
for cohesiveness, and the resulting principle components factor loadings are pro-
vided in Table 4. In determiningthe measurementproperties of the constructs used
in the analysis, the reliability and construct validity of the variables in the model
were assessed. The reliability of each construct was measured with Cronbach’s a
(Cronbach, 1951). All of the multi-item measures had a 2.70, an indication of suf-
ficient reliability (Cook & Campbell, 1979). Table 5 shows the relevant scale
descriptions and reliability coefficients.
Information quality and information participation were originally thought to
represent two distinct constructs. However, all of the single-item measures for
each of these two constructs loaded on one factor. Hence, these two were com-
bined into a single construct described as information quality and participation.
Hierarchical regression analysis was used to test for the existence of a signif-
icant relationship between each of the constructs identified in the model, and the
Monczka, Petersen, Handfield, and Ragatz 563

Figure 3: Overall satisfaction with strategic alliances/partnerships.

1 4 7
Poorly satisfied Satisfied Highly satisfied
(Far below expectations) (Met expectations) (Expectationsexceeded)

three types of dependent variables. Four sets of regression analysis were carried
out: attributes of the relationship, communication behavior, conflict resolution,
and commodity/supplierselection processes (consistent with the methods applied
by Mohr 8z Spekman, 1994; and Nevin, 1990).

RESULTS

Criterion Validity
Criterion validity was assessed by calculating the bivariate correlations between
the two perceptual measures of success and the five objective measures of alliance
performance (price, quality, cycle time, technology, and NPD time). All of these
correlations (except success difference/NPD time) were statistically significant at
the p c .10 level in the expected direction. These correlations are shown in
Table 6. The two success measures correlated with improvements in each of the
objective measures, thereby providing support for the criterion validity of the mea-
sures.

Regression Analysis
Our first set of hypotheses asserted that successful strategic supplier alliances were
associated with high levels of commitment,trust and coordination, and interdepen-
dence. The hypothesized relationship for the trust and coordination and interde-
pendence constructs were significant, large in magnitude, and in the expected
direction. However, the hypothesized relationship between successful strategic
supplier alliances and commitment was not supported.
Our second set of hypotheses asserted that successful strategic supplier alli-
ances are associated with high levels of information sharing and high levels of
564 Success Factors in Strategic Supplier Alliances

Table 2: Performance results in strategic supplier alliances.

Median Percentage Improvement
Least Successful Most Successful
Performance Dimension Alliance Alliance
Purchased material price (0.8) 4.2
Purchased material quality 4.5 13.0
Access to new technologies 5.9 16.8
New product development time 2.4 8.8
Order cycle time 0.5 12.7
Note: Specific metrics for the five performance dimensions were not predefined for the re-
spondents. Price, quality, development time, and cycle time have fairly standard
metrics. Access to new technologies may be measured in a number of ways, for ex-
ample, time to jointly develop new technology, number of new technologies being
applied in the buying company’snew products, or number of technologies for which
the buying company secures right of first use.

information quality and participation. The analysis showed that these relationships
were significant, large in magnitude, and in the expected direction.
Our third set of hypotheses asserted that successful strategic supplier alli-
ances were associated with (1) high use of constructive conflict resolution tech-
niques (including joint problem solving and persuasion), (2) low use of conflict
avoidance techniques (including smoothing over/avoidance techniques), and
(3) low u‘se of destructive conflict resolution techniques (including outside arbitra-
tion and harsh words). The hypothesized relationship for the conflict avoidance
and destructive conflict resolution techniques constructs were significant, large in
magnitude, and in the expected direction. The joint problem-solving techniques
construct was found to be significant and in the expected direction, whereas the
persuasion attempts construct was found to be significant, large in magnitude, and
in the opposite direction than expected. Finally, the results showed some support
for H4,that commodity selection processes were related to alliance success.
In identifying the factors associated with the objective measures of success,
the results are difficult to interpret. Some of the respondents were unable to iden-
tify specific values for price reduction, quality, cycle time, technology, and new
product development time, resulting in a reduced sample for these variables. For
the reduced sample, it appeared that trust and coordination again played a major
role in realizing price reductions, quality improvements, and new product devel-
opment time reductions. Information quality significantly improved quality per-
formance, cycle time reduction, technology improvement, and new product
development time. Finally, information sharing helped to reduce the price paid by
the buyer in the alliance.

DISCUSSION
The results of our study of industrial purchasing alliances are consistent with those
of Mohr and Spekman’s (1994) study of marketing channel partner relationships,
Table 3: Correlation table.
1 2 3 4 5 6 7 8 9 10 11 s3
1 Commitment 1
2 Trust and Coordination .1952 1 !i
3 Interdependence .2803 .4268 1
2
4 Information Quality and .1731 .7581 .3682 1
Participation %
5 Information Sharing .2096 .6174 .3681 .7623 1
2
oc
a
3
6 Smoothover -.0162 -.1404 .0658 -.1134 -.0525 1
7 Persuasive Attempts -.1342 -.0554 -.0567 -.1414 -.1737 .3104 1
8 Joint Problem Solving -.0122 .55 13 .3857 S554 S362 .0987 .lo67 1
9 Harsh Words .0782 .3117 .3065 .2912 .1485 -.0895 -.0681 .2287 1
10 Outside Arbitration -.0284 -.1665 -.0364 -.0840 -.1109 .0391 .0220 -.0444 -.0750 1
11 Commodity/Supplier .2729 .1837 .0431 .0768 .2588 -.Of398 -.1517 .0367 -.0406 .1722 1
Selection Processes

CL 4.30 5.14 4.92 4.81 5.18 3.81 4.45 5.41 5.50 1.23 4.33
Q 1.39 1.15 1.33 1.27 1.21 1.77 1.40 1.52 1.12 0.71 1.41
566 Success Factors in Strategic Supplier Alliances

Table 4: Factor loadings.

Factor Factor Factor
Construct Loading Construct Loading Construct Loading
Commitment Interdependence Information Quality
CM 1 .60766 ID 1 .66047 and Participation
CM2 .67 143 ID2 37689 QL1 A677 1
CM3 A2360 ID3 36635 QL2 A7427
CM4 .83777 QL3 37989
QU .88968
Trust and Coordination Information Sharing QL5 32579
TC 1 35618 IS 1 .78403 PTl .76885
TC2 ,79100 IS2 33622 pr2 .72808
TC3 .76138 IS3 .7964 1 pr3 .6967 1
TC4 .80264 IS4 .78607 m4 .77320
IS5 .80006 pr5 .769 17
IS6 .52384
Past Success
su 1 31287 CodSup Selection
su2 .90163 NAl .91386
su3 36457 NA2 .91386
su4 $6163
su5 35789

with three major exceptions: interdependence, commitment, and information shar-

ing. Interdependence emerged as a significant predictor of success in industrial
strategic supplier alliances but not in market channel relationships (although the
small p of .lo7 in our study suggests that this is not a critical antecedent). Second,
commitment was a significant predictor of market partnership success in Mohr and
Spekman’s study, but had little effect on industrial purchasing alliance success.
Third, information sharing was negatively related to satisfaction with profit in
Mohr and Spekman’s study (although predicted to be positively related). This rela-
tionship was positive in our study. These and other differences are discussed in
greater detail in the following sections.

Attributes of the Relationship

Trust, coordination, and interdependence explained a sizable portion of the vari-
ance in perceptual measures of success (62.8%). These variables are important fac-
tors in strategic supplier alliances because of the multiple dimensions implicit in
such relationships. For instance, suppliers may become closely involved in joint
R&D, requiring access to internal design competencies and technology roadmaps.
Joint improvements in the areas of cost reduction, quality, and just-in-time deliv-
ery also require multiple interdependencies between engineers, materials manag-
ers, and designers. This results in an increasing reliance of the buying company on
its alliance partner, such that a greater degree of task coordination is required. As
Monczka, Petersen, Hadfield, and Ragatz 567

Table 5: Estimates of reliability.

Description of Construct Alpha
Commitment .7110
Trust and Coordination 23110
Interdependence .7115
Information Sharing 3492
Information Quality & Participation .9348
Past Success .9112

task coordination is carried out, the buying company first develops a cognitive
trust in the supplier’s capabilities, and later an affect-based trust within the rela-
tionship (McAllister, 1995; Ring & Van de Ven, 1994). Although such relation-
ships might develop easily when both firms are small, a more structured process
may be required for larger firms.

Communication Behavior
Both the depth (i.e., quality and participation) and breadth (i.e., extent of sharing)
of information communicated to the other party are important to the relationship.
These results make sense in light of the drivers behind improvements sought
through strategic supplier alliances. Quality improvements occur through joint
sharing of the supplier’s process capabilities and the buyer’s design specifications,
in order to jointly improve process capability ratios (Bhote, 1987). Cycle time
reductions occur through the use of interorganizationalinformation systems such
as EDI, in which credible forecasts and demand streams are shared on a rolling
basis (Handfield, 1993b).Finally, technology development and new product cycle
time reductions occur when the supplier actively participates in development team
meetings, and provides credible and timely information on emerging product and
process technologies (Dyer, 1994; Handfield, 1995; Kamath & Liker, 1994). It
appears that different types of information sharing may “trigger” different dimen-
sions of alliance performance.

Conflict Resolution
Our study indicates that the manner in which conflict is resolved has an impact on
alliance success. The use of joint problem solving can result in a “win-win’’ solu-
tion between alliance partners. Our results show joint problem solving to be asso-
ciated with improved quality performance and reduced new product development
time. We also found that harsh words and arbitration are detrimental to an alliance
relationship.
Although the need for conflict resolution techniques appears clear, there are
still relatively few streams of research that identify how and when to employ these
techniques in strategic supplier alliances. Research is needed to map out how joint
problem-solving processes can be integrated into early supplier negotiations, as
well as throughout the duration of the alliance.
568 Success Factors in Strategic Supplier Alliances

Table 6: Criterion validity.

Price Quality Cycle Time Technology NPD Time
Success -.2161** .345 1*** -.1771* .3033** -.2045*
Success Difference -.1891* .3342*** -.1883* .3879** -
*p < .10
**p < .05
***p < .01
-Not statistically significant
Note: Improvements in price, cycle time, and new product development time are indicated
by negative coefficients, whereas quality and technology improvements are indicated by
positive coefficients.

Commodity/Supplier Selection Process Formalization

The final variable included in explaining the success of supplier alliances was
unique to our study. The results show that a formalized process within the buying
company for identifying a specific commodity family for alliance development,as
well as a formal process for identifying an appropriate supplier, has a measurable
impact on the success of the alliance. Alliances should not be pursued with all sup-
pliers. The decision must be based on a careful definition of long-term strategic
requirements for the commodity and performance objectives required to meet
these needs. Moreover, managers need to develop specific supplier selection crite-
ria, which consider the supplier’s capabilities,performance, and cultural fit. A for-
mal assessment of the supplier should be carried out in order to determine the
potential “fit” between the companies.
“Portfolio analysis” is one tool for formalizing commodity/supplierselection
processes. For instance, one company in our sample considered a strategic alliance
only for a supplier who meets one or more of three specific criteria: the supplier
has technology that is core to the company, supplies high-dollar products, or is a
single source. They also used a formal process to discontinue a relationship, which
considers delivery, quality, and performance data as a benchmark in meeting
expectations. It is interesting to note that this company also formally measured
whether or not it was meeting the supplier’s expectations as a customer.

CONCLUSIONS
There are relatively few guidelines for decision making in implementing and
developing strategic alliances. Although the basic concept of alliances is well
known, purchasing managers have expressed frustration in managing these rela-
tionships, because they differ significantly from traditional buying arrangements
and partnerships. Purchasing managers often underestimate the time and energy
required to create and sustain strategic supplier alliances.
The most important action to be taken by purchasing in building a successful
supplier alliance is to foster and nurture a sense of trust with the supplier. This can
be done through greater task coordination and “doing what you say you’re going to
do.” Notably, the use of formal commitments of time and money did not appear as
Table 7: Regression coefficients.
Past Success Cycle IWD
Success Difference Price Quality Time Technology Time
N~134 Nd34 Nz98 Nz87 N~78 N=83 N~70
Hla Commitment - - - - -
Hlb Trust and Coordination .751*** .534*** .363*** .343*** -.337***
Hlc Interdependence .1065** .123*** - - -
R2 .628 .32
H2a Information Quality and Participation .621*** .653*** .357** .428** -
H2b Information Sharing .219*** - - - -
R2 .763
H3a Persuasive Attempts -.212*** -.287*** - -.2378* -
H3a Joint Problem Solving .646*** .443*** .23*** - -.3 15***
H3b Smooth Over - - - - -
H3c Outside Arbitration -.165*** - - - -
H3c Harsh Words -.141** - -.213* - -.235*
R2 .534 .311
H4 Commodity/Supplier Selection Processes .45** - - - - - -

*p c .10
**p c .05
***, c .01
-Not statistically significant
Note: Improvements in price, cycle time, and new product development time are indicated by negative coefficients,whereas quality and technology improve-
ments are indicated by positive coefficients.
570 Success Factors in Strategic Supplier Alliances

a significant predictor of alliance success. This contrasts the literature that

emphasizes the importance of asset specificity in determining alliance success
(Nishiguchi, 1994).
Bilateral communication behavior also played a significant role in determin-
ing alliance success. Both the depth and breadth of information conveyed to the
alliance partner proved to be important in managing the relationship. The need for
information sharing is closely related to another criterion of alliance management
that was an important predictor of success: conflict resolution orientation. The
results suggest that joint problem solving is preferable to destructive or avoidance
methods of addressing conflict. In fact, the analysis suggests that the latter tech-
niques may actually harm the relationship, resulting in price increases, deteriorat-
ing quality, and increased cycle time.
The need for a formal purchasing commodity strategy development process,
followed by a formal supplier assessment and selection process was found to be
related to alliance success. Such processes are needed to ensure cultural and
capacityheed alignment between the parties in the alliance.
This framework provides an interesting set of results worthy of future study.
There is a need to understand the evolution of trust in strategic alliances, and how
this process can be managed through the use of information sharing and participa-
tion. The fact that our supplier-manufacturerresults parallel the findings of a man-
ufacturer-distributor sample (Mohr & Spekman, 1994) suggests that the same set
of processes can be used to establish better relationships throughout all channels of
a fully integrated supply chain. Finally, there is a need to merge the fields of con-
flict management and supplier alliances in discovering the means and processes to
prevent and resolve conflicts. These areas of research can be complemented by
dyadic studies of buyer-supplier alliances and ongoing longitudinal studies of alli-
ance development. [Received: April 11, 1996. Accepted: April 11, 1997.1

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514 Success Factors in Strategic Supplier Alliances

APPENDIX

Indicators of Success

Past success (1 = Strongly disagree, 7 = strongly agree)

SU1: In this strategic supplier alliance/partnershiprelationship, the parties
work together to solve problems.
SU2: This strategic supplier is flexible in response to requests we make.
SU3: This strategic supplier makes an effort to help us during emergencies.
SU4: When an agreement is made, we can always rely on the strategic sup-
plier to fulfill the requirements
SUS: Please indicate the overall degree of results satisfaction with your
most/least successful strategic supplier alliance/partnership. (Poorly
satisfed'extremely satisfied)
Success difference
Success difference (SU7) was assessed by taking the difference between SU6
and SU6a.
SU6: Please indicate your degree of satisfaction with this strategic supplier
alliance/partnership.
SU6a: What is your business unit's overall degree of satisfaction with strate-
gic supplier alliances/partnerships?(1 = Poorly satisfied, 7 = highly
satisfied)
SU7: SU6a - SU6

Attributes of the Alliance

Trust and coordination

Trust: (1 = Strongly disagree, 7 = strongly agree)
TC1: We trust that our strategic supplier alliance/partnershipwill be bene-
ficial to our business unit.
TC2: We do not get an equitable deal from our strategic supplier in this alli-
ance. (Reverse scored)
TC3: This strategic supplier alliance/partnershiprelationship is marked by
a high degree of harmony.
Coordination: (1 = Verypoorly, 7 = extremely well coordinated)
TC4: Please rate the business unit's most and least successful strategic sup-
plier alliance/partnershipin terms of coordination with your strategic
supplier.

Commitment (Significantly lesshignificantly more)

Each of the following questions was developed for (1) the most successful
strategic supplier alliance compared to the least successful strategic supplier
alliance and (2) the most successful strategic supplier alliance compared to
Monczka, Petersen, Handfeld, and Ragatz 575

the least successful nonstrategic supplier alliance/partnership. The latter

question (2) was treated as the respondents answer for their most successful
alliance whereas the former question (1) was recoded from a (1 = SL to
7 = S M ) scale to a (-3 to +3) scale. This new scale was then subtracted from
the most successful scale and used as the respondents least successful
response. Specifically, questions were asked with respect to:
CM1: Time commitment of your business unit’s key personnel
CM2: Supplier training
CM3: Capital investment in the supplier
CM4: Direct dollar investment in the supplier

Interdependence (1 = Strongly disagree, 7 = strongly agree)

ID1: It would be very easy to terminate these most or least successful stra-
tegic supplier alliance/partnerships and establish another strategic
supplier.
ID2: The time to establish another strategic supplier alliance/partnership
for this commodity/purchasefamily would be extremely long.
ID3: The cost to establish another strategic supplier alliance/partnership
for this commodity/purchasefamily would be extremely high.

Communication Behavior

Information quality
To what extent do you believe your business unit’s communication with the
supplier in these most and least successful strategic supplier alliance/partner-
ship are:
QL1: Timely (1 = Not timely at all, 7 = very timely)
QL2: Accurate (1 = Not accurate at all, 7 = very accurate)
QL3: Adequate (1 = Not adequate at all, 7 = very adequate)
QL4: Complete ( 1 = Not complete at all, 7 = very complete)
QL5: Credible (1 = Not credible at all, 7 = very credible)

Information participation ( 1 = Strongly disagree, 7 = strongly agree)

FT1: We actively seek advice, counsel, and information from our strategic
supplier in this strategic supplier alliance/partnership.
FT2: The strategic supplier participates in our planning and goal-setting
activities.
FT3: We participate in our strategic supplier’s planning and goal-setting
activities that are relevant to this strategic supplier alliance/partner-
ship.
FT4: We actively encourage improvement suggestions from this strategic
supplier.
516 Success Factors in Strategic Supplier Alliances

PT5: We take timely action on this strategic supplier’s suggestion(s) for

this alliance/partnership.

Information sharing (1 = Strongly disagree, 7 = strongly agree)

IS1: We share our business unit’s proprietary information with this strate-
gic supplier for this strategic supplier alliance/partnership.
IS2: Our strategic supplier shares proprietary information with us.
IS3: We inform this strategic supplier in advance of changing needs.
IS4: In this relationship, it is expected that any information which might
help the other party will be provided.
IS5: The parties are expected to keep each other informed about events or
changes that may affect the other party.
IS6: It is expected that the parties will only provide information according
to pre-specified agreements (R).
IS7: This strategic supplier keeps us fully informed about issues that
affect our business.

Conflict Resolution Techniques

Assuming that some conflict exists over various program and policy issues
and how the strategic supplier alliance/partnership is executed, how fre-
quently are the following methods used to resolve such conflict? (1 = Nevel;
7 = occasionally)
CR1: Smooth over the problem
CR2: Persuasive attempts by either party
CR3: Joint problem solving
CR4: Harsh words
CR5: Outside arbitration

Commodity/Supplier Selection Process

NA1: How comprehensive is your business unit’s process to select com-
modities/purchase items as candidates for strategic supplier alli-
ances/partnerships-compared to what you may consider best
practice? (1 = Poorly satisfied, 7 = highly satisfied)
NA2: How comprehensiveis your business unit’s strategic supplier assess-
ment and selection process-compared to what you consider best
practice? (1 = Very limited, 7 = very comprehensive)

Robert M. Monczka is director of the Global Procurement and Supply Chain

Benchmarking Initiative, Professor of Strategic Sourcing Management, and The
National Association of Purchasing Management Professor at Michigan State
University. His current research efforts are directed at procurementlsourcing and
supply chain strategy. Outside of the academic arena, his career consists of
consulting and research with more than 150 international organizations.
Monczka, Petersen, Handfield, and Ragatz 577

Kenneth J. Petersen is a research associate for the Global Procurement and Supply
Chain Benchmarking Initiative at Michigan State University, and is completing a
PhD in operations and sourcing management from Michigan State University. He
received an MBA from the University of Akron, and a BS in finance and economics
from the University of Alabama. His research interests are in strategic alliances and
the use of information technology throughout the supply chain.

Robert B. Handfield is an associate professor of purchasing and operations

management at Michigan State University, and a faculty research associate for the
Global Procurement and Supply Chain Benchmarking Initiative. He received a PhD
in operations management from the University of North Carolina at Chapel Hill.
His research combines qualitative and structural modeling approaches to the study
of time-based competition, quality management and strategic sourcing. He has
presented a number of seminars on these topics to materials managers, and also
serves on the editorial review board of the Journal of Operations Management and
Decision Sciences.

Gary L. Ragatz is an associate professor of operations management at Michigan

State University, and a faculty research associate for the Global Procurement and
Supply Chain Benchmarking Initiative. He received a PhD in operations
management from Indiana University, and is secretary of the Decision Sciences
Institute and past president of the Midwest Region of the Decision Sciences
Institute. Dr. Ragatz serves on the editorial review board of the Journal of
Operations Management. His current research focuses on industry best practices in
integrated supply chain management and short-term schedulingkapacity planning
systems.