Personal Relationships And Loyalty In Supply Chain

Abstract

Majority of the literature on personal relationships in the business discipline, specifically marketing literature, suggests that such relationships generate positive firm-level outcomes such as enhanced business volume for supplying firms. However, personal relationships can also deviate managers from the firm’s interest and lead to negative firm-level outcomes. For instance, managers may begin to use personal relationships to address their self-interest instead of using such relationships to promote the interest of the firm. Despite this, the current body of knowledge on this issue is relatively fragmented. This study fills this important gap in the literature. This study employs a qualitative case study method. Overall, 10 in-depth interviews with senior managers of buying and supplying firms from Australian manufacturing and service sectors were conducted. Senior managers from the buying firms belonged to the following organizations: manufacturer of chemical products, coffee machines, leather products, solar panels and construction materials. Senior managers from the supplying firm were associated with the following organizations: supplier of web services, financial services provider, education services provider, aviation services provider and a supplier of gaming parts. Results reveal that that Procurement Managers continue to grant more business to Sale Managers as a result of the personal relationship and do not actively look for other suppliers offering superior services and quality products, which results in higher opportunity costs for the buying firms. Furthermore, Procurement Managers continue to chase Sales Managers from one supplying firm to another in the competition, instead of continuing a business relationship with current supplying firms, resulting in reduced business volume with currently supplying firms. This study has implications for firms as well. For instance, firms can use findings from this study to explicitly understand action (personal loyalty etc.) that managers engage in as a result of personal relationships with their counterparts across firms, as well as the corresponding negative consequences associated with it (higher opportunity costs and reduced sales volume). Firms can further use findings from this study to develop policies in order to mitigate the negative consequences of personal relationships within inter-firm relationships and to further streamline its objectives.