Relationship duration and buyer influence in just-in-time relationships

Abstract

Heavy investments tailored to a specific JIT-relationship highlight the trade-off between improved value-added and inter-firm dependence in industrial purchasing relationships. The main reason for dedicating specific investments in a JIT-relationship is to enhance production efficiency and logistics performance. On the other hand, such investments induce substantial inter-firm dependence and high switching costs, which must be offset by stronger inter-firm co-ordination. Using transaction costs analysis (TCA) and relational contracting theory (RCT), the authors have examined whether the buyer's influence on a JIT-relationship is contingent upon the length of that relationship. Data from a survey of 165 industrial purchasing relationships demonstrate that as a JIT-relationship evolves over time, inter-firm co-ordination tends to increase reliance on relational governance. When the level of the JIT-investment is substantial, hierarchical buyer control relaxes significantly as the length of the relationship increases.