Developments In Supplier Retailer Relationships example essay topic

Consequences of information technology on supplier- retailer relationships in the grocery industry. A comparative study of Sweden and the United Kingdom Assistant professor Ulf Johansson This project is focused on investigating the effects of information technology (IT) on supplier - retailer relationships in the grocery industry. While IT use in business-to-business relationships have increased dramatically in recent years, much of our knowledge of this type of relations still rest on models where the social element of the relationships and personal interaction have a large influence. As more and more communication is done electronically between supplier and retailer, the need for new conceptualizations of relationships grow stronger. In an ongoing study on buying processes in the grocery industry (Johansson & Runolfsdottir, 2000) the trend towards increasing digitalisation and automation of supplier - retailer relations was very clear and dominant, although the stage of development in countries around Europe differs.

As relationships between organisations very much represents where the business takes place, changes in the way these relationships are conducted may have far-reaching implications. Increasingly based on digitalisation and electronic communication, interaction dimensions will change and this change could effect many areas of existing buyer - seller relationships. The focus in this study is on relationship formation and development, distribution of power in relationships and also relationship responsiveness and innovation. These are all areas in relationships that IT will have an influence on. Relevant theory in respective area will be used to construct a theoretical framework to guide empirical work in the project and analyse the empirical data collected. The proposed study intend to use a country comparison approach, using Sweden and the United Kingdom as cases involving different levels of sophistication with regards to IT and supplier - retailer relationships.

Here focus will be on 5-10 supplier - retailer relationships for each country, representing different levels of IT involvement in the relationship. The project will start July 2001 finish by June 2002. The contribution of the study is expected in terms of theory development rather than theory validation. For suppliers and retailers, the contribution will be an increased understanding of how their relationships may develop as more IT is introduced.

For government and society in general, some conclusions on how the IT development in this area will effect efficiency and effectiveness can be expected to be given. Background Information technology (IT) 1 has entered many fields of organisational life in the last couple of years. One of these is buyer and seller relationships and in that context the phenomenon is often termed e-commerce. While the potential of e-commerce concerning business to consumer has been thrown into some doubt this last year, e-commerce in business to business relationships seems to have taken off very rapidly (e.g. Cuthbertson, 2000; OMS, 2000; Supermarket, 2000).

It is expected to account for 25-30% of all business communication in two years time (Fred holm, 2000). While integrated and automated customer relationship management (CRM) programs may seem distant, talk about achieving it is already on its way (e.g. Newell, 2000; Stone, Woodcock & Machtynger, 1999). Buyer - seller relationships, and our understanding of them, often has included a quite large social 1 IT is here used in a quite broad sense and referring to IT as an enabling technology; it is a set of tools based on computer chips and computing technology with which it is possible to gather, transmit, process and present information in its different forms (audio, video, text, graphics). 2 element as relationships involve social interaction of persons representing organisations (e.g. Cook & Emerson, 1978; Emerson, 1976; Ford et al 1998; Oliver, 1990). However, things seems to be changing also in this area as relationships are increasingly digitalised through IT, not least in the grocery industry. To be sure, IT has been present in the grocery industry to some extent (ordering systems, hand-held terminals, EPOS, EDI etc.) since late 1980's and early 1990's, but recent developments mark a clear escalation of the use into new areas.

The area of the relationship between a supplier and a retailer in the grocery industry has for a long time been a relationship built on personal contact. The personal contact between the sales force of the supplier and representatives for the retailers (from store managers and 'upwards') has been the foundation of business relationships in the grocery sector. In recent years, the size of the sales forces have decreased, and more and more communication is done electronically between supplier and retailer. This is especially true in countries / areas like the United Kingdom, where different forms of Extranet, propriety-nets based on Internet technology, is increasingly the contact point between suppliers and retailers. Through this, suppliers can access information on their sales and stocks, including promotions, with the retailers. For example, with Safeway, UK's 4th largest grocery retailer, some 500 suppliers (including all major ones) are included in their Supplier Information System (SIS).

The same applies for number 1 on the market, Tesco, and its TIE (Tesco Information Exchange) system. The operations set in place for number 3 on the market, Asda, is argued to be even more advanced as Asda is owned and operated by Wal-Mart, a retailer that builds is success largely on the use of state of the art information technology (e.g. Arnold & Fernie, 1999; Burt & Sparks, 1999, Seth & Randall, 1999). In all these three chains, automatic replenishment systems are in operation (ID, 1998), making the re-stocking of merchandise very much an automatic matter and nothing that involves persons and social contacts. Sainsbury, the number 2 grocery retailer in the United Kingdom, as well as Tesco, participates in the newly opened electronic and Internet-based market exchanges, GlobalNetXchange and WorldWide Retail Exchange respectively.

These exchanges are open to retailers and aimed at reducing purchasing costs and standard ising the purchasing process (through electronic trading and sourcing). In Sweden, suppliers and retailers in the grocery industry have not reached the level of sophistication of the United Kingdom, but interest and ambition makes it certain that it is only a question of time before we see this development also in Sweden. In an ongoing study on buying processes in the grocery industry (Johansson & Runolfsdottir, 2000) the trend towards increasing digitalisation and automation of supplier - relations was clear and dominant, although the stage of development in countries around Europe is very different. While United Kingdom is very much the front-runner and Italy the laggard, Sweden is somewhere in between.

Problem area and previous research These developments concerning relationships between suppliers and retailers are of course driven and fuelled by increasing endeavours to rationalise and increase efficiency in these relationships. This is, however, a too complex issue to be reduced to merely an efficiency problem. As relationships between organisations to a large degree represents what business is about and where the business takes place, changes in the way these relationships are conducted may have far-reaching implications in many areas of company operations. While technological capacity, in terms of receiving and transmitting ever larger and more complex sets of data, will continue to grow, "richness" (Evans & Wester, 1999) in electronic communication may not grow as fast. Richness here refers to how complex a message is allowed to be, with personal interaction having the potential for carrying the most number of 3 dimensions and thus able to receive and transmit a more complex and many faceted message. As things are increasingly digitalised and electronically communicated, interaction may "loose" dimensions and this loss could effect many aspects of existing buyer - seller relationships.

Of special interest here are the following areas; 1. relationship formation, development and division of tasks / activities 2. distribution of power and influence in relationships 3. relationship responsiveness and innovation Concerning 1) there are a multitude of models dealing with the different stages that relationships go through as well as activities carried out by different parties in the relationship and also activities that keep the relationship together (e.g. Anderson & Nar us, 1984; Dwyer, S churr, & Oh, 1987; Ford et al, 1998; Ganesa n, 1994; Johnsen, et al, 2000; Stern, El-An sary & Coughlan, 1996). It is important to study if IT has implications for relationships formation and development in general and how distribution and co-ordination of tasks between parties in a relationship may be effected. Also, the distribution of power and influence in relationships (e.g. Butane y & Wortzel, 1988; Cook, 1977; Dawson & Shaw, 1989, 1990; Elg & Johansson, 1997 a; Gas ki, 1984; Pfeffer & Salancik, 1978) are often asymmetrically distributed between supplier and retailer. Different developments concerning the conditions governing how exchanges in relationships take place, may have an impact on the distribution of power and influence between the different parties.

Lastly, consumer and market orientation of companies and systems is an important area in relationships (e. g., Deshpande, 1999; Elg & Cern e, 1999; Gruner t et al, 1996; Jaworski & Kohli, 1993; Slater & Naiver, 1995). As the way exchanges in the relationships takes place evolves, there could be effects for the level and type of innovation achieved and for responsiveness of the organisations in a relationship in general. These different areas are all dimensions of supplier - retailer relationships that IT could have an effect on and will be the focus of the proposed study. Here, relevant theory in respective area (e.g. the one referenced above) will be used to construct a theoretical framework to guide empirical work in the project and make the analysis of IT and relationships possible. While there presently exist quite a few studies on IT and business relationships in general (e.g. Bam field, 1994 a, 1994 b; Brenner & Hamm, 1996; Roberts & Mackay, 1998; Threlkel & Kav an, 1999; Walker, 1994) and supplier and retailer relationships specifically (e.g. Anselm i, 1997; Blackwell, 1997; Esbjerg, 1999; Fines & Ennis, 1994; Kahn & McAlister, 1997; Ogbonna & Wilkinson, 1996; Walton & Maru check, 1997; Wilson & Vlosky, 1998), it can still be argued that this is a largely unexplored area (e.g. Cuthbertson, 1999; Dawson, 1994, 2000; Holm-Hansen & Sky tte, 1997). Some of the studies that have been done so far concern other situations than retailer - supplier (mostly industrial marketing), making transferability of results difficult due to different settings (e.g. industrial marketing generally involves more technically complex products or services).

Other studies are very general in their approach and more often aimed, it can be argued, at describing different technologies than investigating their effects on supplier - retailer relationships in any specific way. Preliminary results from the study referred to above 2 (Johansson & Runolfsdottir, 2000) points to IT and supplier - retailer relationships as an important area for future research. In that study some possible future directions concerning IT and supplier - retailer relationships are also given. Between suppliers and retailers, several types of information are present and 2 The work in that project will be reported to K LIV towards the end of 2000. The preliminary results, together with the framework developed in the study, are going to be presented at the British Academy of Management, in Edinburgh, mid-September 2000.4 exchanged in the relationship 3. Some types of information, for example commercial, administrative and co-ordinating information, seems to be more easy to standardise in a way that makes digitalisation possible.

Others, such as information concerning knowledge building and influencing others may not be so easy. The latter types of information seems to require more dimensions for communication than is presently possible in existing IT solutions. Still, while it is difficult to imagine a complete digitalisation of buyer - seller relations with present technology, the ongoing process of digital ising the relationships continues to grow into more and more areas. This can be expected to have profound effects on how the different parties view and act in their relationships. As some areas of the relationship between suppliers and retailers change due to increasing use of IT for communication, other areas of the interaction between supplier and retailer is bound to be effected as well. However, Johansson & Runolfsdottir does not go any further than give some possible indications as to interesting research areas with regards to IT and supplier - retailer relationships.

The main aim of that that research is a different one from the one in the proposed study here. Purpose of the study The purpose of this study is to develop the knowledge of how certain areas of supplier - retailer relationships in the grocery industry, namely; 1. relationship formation, development and division of tasks / activities 2. distribution of power and influence in relationships 3. relationship responsiveness and innovation can be effected by increasing presence of information technology (IT) in these relationships. Research method The empirical work in the project is partly preceded, partly parallel to the development of the projects conceptual framework. This means that the empirical findings are expected to form the framework to some extent as the knowledge and present theory development in the area is not such that a relevant framework can be fully developed without relevant empirical input.

While the bulk of the empirical material will be collected from companies, suppliers and retailers in the grocery industry, a smaller initial survey will also be done to determine what experts and researchers in the area of business communication and IT think about the implications of IT for what happens in business relationships. This study will be conducted in an exploratory fashion while the bulk of the data collected will be concentrated on areas that will be covered by the conceptual framework (see above). As in the Johansson & Runolfsdottir study, the main empirical work in this proposed study also use a country comparison approach, with Sweden and the United Kingdom as cases involving different levels of sophistication with regards to IT and supplier - retailer relationships. A cross country comparison has, I believe, several advantages when conducting the research proposed here. Through comparing countries, rather than just business relationships in the grocery industry in Sweden, it is possible to compare less and more advanced use in a setting that in itself has a general level of involvement in (in this case) IT. This gives another dimension to cross country comparisons as results can be better contextualized.

Also, this type of design ads yet another comparative dimension to the study, increasing the analytical possibilities - across cases, across countries - beyond just comparing 3 This is a development of Nilsson & Host (1987) compilation of variables influencing retailer's choice and Gadd e & Hakanssons (1993) discussion of different types of information present in communication between buyers and sellers. 5 cases within one country. Through the Johansson & Runolfsdottir study, excellent contacts with retailers as well as suppliers in both United Kingdom and Sweden exist that can be utilised also for this research. In this research, focus will be on choosing 5-10 supplier - retailer relationships for each country, representing different levels of IT engagement concerning the exchange processes present in the relationship. Comparison between "normal" types of supplier - retailer relationships will be compared with "advanced" IT-type of relationships. Without the possibility of comparison (between different types of relationships), it may be difficult to draw any conclusions concerning possible effect on or changes in the relationships.

In-depth interviews (complemented by surveys where suitable) will be used to collect the data, focusing on actual and potential changes in supplier - retailer relationships due to the (increased) use of IT. Areas intended to be covered by the empirical work as well as models to be used in this respect has been indicated above (see Problem area and Purpose of the study). Expected contributions by the study In terms of scientific contributions, it is expected that this study will enhance the knowledge on IT and relationships in general and specifically those present in a supplier - retailer context. The contribution is to be viewed in terms of theory development rather than theory validation as the theory in the area of IT and supplier - retailer relationships is still very much developing.

In general, while the theoretical positioning of the study is IT and relationships in general, the contribution will be aimed at the different areas of relationships development, power and influence distribution, innovative ness etc. discussed above. From a supplier perspective, it may be important to see if the new technology offers an opportunity to level the degree of influence in the relationship; will IT make suppliers more interchangeable, will suppliers loose initiative when it comes to consumer relationships, innovation etc. or will relationships emerge tighter and as more partnership oriented? Also, will increasing IT existence in relationships impede or strengthen supplier innovation and ability to respond to consumer demands? From a retailer perspective, one obvious concern is how to increase standardisation of relationships (to achieve inter changeability between suppliers) while still maintaining a strong supplier base in other respects at the same time (i. e., suppliers that also, besides engaging in cost efficient relationships with retailers, can manage initiative and have enough capabilities to be able to innovate products and services and also create valuable consumer relationships). For retailers the question becomes one of trying to achieve economics of scale and efficiency - which IT promises to enhance - while not loosing out on other areas - such as innovation of product and services. For government and society in general, including consumers, the expected contributions of the study will be the increased knowledge of how developments in supplier - retailer relationships may influence overall efficiency and consumer responsiveness.

While the increased use of IT is one of many ways to increase efficiency of relationships, it also involves the risk of loosing responsiveness as automation may make the system, and the included relationships, more rigid. It may, however, also have the opposite implications, with IT increasing the efficiency and responsiveness of the organisations and the relationships between them. Thus, also on a more general level - i. e., government, society and consumer - the study can be expected to contribute within areas of general interest.