All You Need Is Trust? An Examination of Inter-organizational Supply Chain ProjectsProduction and Operations Management

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Authors
Andreas Brinkhoff, Özalp Özer, Gökçe Sargut
Year
2014
DOI
10.1111/poms.12234
Subject
Industrial and Manufacturing Engineering / Management Science and Operations Research / Management of Technology and Innovation

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All You Need Is Trust? An Examination of

Inter-organizational Supply Chain Projects

Andreas Brinkhoff

McKinsey & Company, Inc., Magnusstrasse 11, 50672, Cologne, Germany, andreas_brinkhoff@mckinsey.com €Ozalp €Ozer

Jindal School of Management, The University of Texas at Dallas, 800 W. Campbell Road, Richardson, Texas 75080, USA oozer@utdallas.edu

G€okce Sargut

College of Business and Public Administration, Governors State University, University Park, Illinois 60484, USA, gsargut@govst.edu

T his study examines the antecedents of supply chain project success. We first propose and test a model that describesthe role of relationship-level factors (trust and asymmetric dependence) and project-level factors (between-firm communication and within-firm commitment) in determining supply chain project success. We find that project-level factors completely mediate the effect of trust on project success. We conclude that trust, despite being a stronger predictor compared to asymmetric dependence, is necessary but not sufficient for supply chain project success. We then proceed to further explore the role of these factors by introducing a categorical scheme that differentiates supply chain projects based on the decision rights configuration of each project. This categorization enables us to explore how relationship-level and project-level factors can have different impact on performance based on the characteristics of a supply chain project. The findings offer insights into how to effectively manage supply chain projects and inter-firm alliances.

Key words: trust; asymmetric dependence; supply chain projects; project management; performance

History: Received: September 2010; Accepted: March 2014 by Karen Donohue, after 4 revisions. 1. Introduction

Supply chain management has become one of the most prominent fields in the management sciences, developing numerous new concepts to optimize supply chain performance over the limits of intra-firm functions and inter-firm borders. Yet, insights on successful implementations of supply chain projects in practice, as well as first-hand information about such projects, remain underdeveloped (Buhman et al. 2005, Gupta et al. 2006, Kouvelis et al. 2006). This study investigates factors contributing to successful implementation of supply chain projects, such as vendor managed inventory (VMI) and electronic data interchange (EDI).

We define supply chain projects as dyadic activities between existing alliance partners that have already established a relationship. These dyadic activities include joint-improvement of existing processes and/ or building new ones (e.g., designing new information exchange or electronic procurement systems).

Economic theory suggests that such relationships should ideally be based on credible contracting, where “the parties exercise feasible oversight [. . .] they look ahead, uncover potential hazards, work out the mechanisms, and factor these back into the contractual design” (Williamson 2008, p. 10). Yet even with such oversight and detailed contractual agreements, some supply chain projects fail where others succeed.

Extant research on inter-firm alliances and strategic partnerships has examined various factors that are likely to explain the varying levels of performance in alliances (see, e.g., Mohr and Spekman 1994, Robson et al. 2008). Some of these factors—such as communication, and top-management/employee commitment— pertain directly to projects, whereas others—such as asymmetric dependence and trust—characterize the relationship between partners. The importance of relationship-level factors stems from the fact that they constitute the formative building blocks, and therefore shape the foundation of a given relationship.

Firms often have preconceived notions about their partners’ power and influence based on past experience dealing with them and readily accessible knowledge of their size, business volume, and reputation.

For example, the perceived level of asymmetric dependence between partners is an important factor 181

Vol. 24, No. 2, February 2015, pp. 181–200 DOI 10.1111/poms.12234

ISSN 1059-1478|EISSN 1937-5956|15|2402|0181 © 2014 Production and Operations Management Society because partners are likely to have an initial impression of the discrepancies in influence between themselves and their counterpart—even before a supply chain project is implemented. Recent evidence suggests that asymmetric dependence can have a negative effect on process integration and information sharing in supply chain partnerships, which can in turn decrease partnership sales growth, productivity, and profitability (Schloetzer 2012).

Trust, in particular, remains a fundamental concern for researchers across multiple disciplines from psychology and sociology to economics and operations research, because all relationships have a trust component (Deutsch 1958, Fukuyama 1995, €Ozer et al. 2011, Sheppard and Sherman 1998). Trust is important in alliances of all types, especially because of its role as an enabler that creates conditions which lead to higher performance (McEvily et al. 2003). Indeed, organizational theorists have argued that trust is more than merely a factor, but an organizing principle, “a basic necessity for all forms of exchange” (McEvily et al. 2003, p. 99). “Virtually every commercial transaction has within itself an element of trust” (Arrow 1972, p. 357). Hence, we also highlight the importance of trust when examining supply chain project success.

A widely accepted definition from management research reflects our approach to trust: “Trust is a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another” (Rousseau et al. 1998, p. 395). As mentioned above, such positive expectations could result from familiarity between two firms. For example, two firms that were allies in the past would likely have had the opportunity to gain at least some knowledge about each other which helped them assess their partner’s trustworthiness for future partnerships. The initiation of a supply chain project between two firms—where the partners engage in projects that integrate their information and management infrastructure to become more closely tied to one another—often occurs in such a context.