An exploratory study into buyer and supplier relationship problems, causes, control strategies and effects in Saudi Arabian companies

Abstract

Around the world, companies are rapidly moving towards outsourcing to enhance their competitive position in the market through reduction in product development cycle times (costs), demands for better quality, improvement in supply chain management and higher expectations from more discriminating and demanding customers (Lyons and Krachenberg, 1990). An outsourcing mechanism consists of two parties, buyer and supplier. Hence, the success of the buyer and supplier relationship is the main factor to achieve successful outsourcing operations. This research studies the buyer and supplier relationship in each relationship type in the Saudi Arabian market; market exchange, captive buyer, strategic partnership and captive supplier. The main objective of this research was to study in depth buyer and supplier relationships (outsourcing) by discovering which problems exist in each type of relationship, how they can be controlled and what are their effects. It examines and tests certain factors associated with the relationships, such as incentives for their creation, relationship problems, cause of problems, problem control mechanisms and finally the effects of these problems on the buyer, the relationship and the market. The methodology used in this study was as follows: an interpretative research philosophy, an inductive research approach and an exploratory research strategy. Semi-structured interviews were found to be the most appropriate method of data collection because they enabled the researcher to gather valid and reliable data. The research model involved all the components affecting the buyer and supplier relationship. These components were categorized and classified in a meaningful way, describing the flow of the relationship from the research perspective in terms of testing the effect of each component in the relationship between buyer and supplier in general and its effect on the category to which it belongs. The data was collected from purchasing employees on the buyers’ side and sales employees on the suppliers’ side. The total number of participating buyer and supplier firms was 57, distributed across manufacturing and service industries. The first data collection phase involved all the buyer data and the second following up, reviewing and completing the data that the researcher thought had been missed during the first phase of interviews, and which needed to be explained more fully by the interviewees. This phase also involved collecting all the supplier data. 40 interviews were conducted to collect buyer data within three months. The 40 interviews involved 88 recorded hours, and each buyer discussed 4 relationships (not necessarily 4 different types of relationship), resulting in a total of 64 market exchange, 30 captive buyer, 22 strategic relationship and 44 captive supplier relationships, accounting for the total of 160 different types of relationships across the 40 different buyers. Supplier data was collected by conducting 17 interviews within 27 days. The 17 interviews involved 34 recorded hours. While the researcher was analyzing the data collected, a special case in market exchange relationship was found. In this case, buyers preferred to deal with suppliers under a captive buyer relationship though the relationship characteristics were market exchange relationship because of their interests. The researcher also found that Saudi firms are the same as other firms in the rest of the world. They are trying to maximize their competitiveness in the market by improving product or service quality and speed of delivery, reducing product or service costs and enhancing decision making efficiency. Additionally, it was found that relationship incentives, arising from buyer wishes or compulsory reasons, create any one of the buyer and supplier relationship types, which were other than what has been mentioned in the outsourcing reasons in the literature. In addition, the researcher also found that relationship incentives might cause problems, so the buyer should be more careful with them. Additionally, there are also other causes that might create agency problems than those mentioned in previous studies. At the same time, it was observed that there are new control mechanisms, not previously discussed in the literature. The study found that the outsourcing relationship is affected negatively, and there are other effects than those mentioned in the literature by Tezuka (1997). In addition, the researcher found that because of the ‘agency’ system in Saudi Arabia its economy is affected negatively. Finally, the original research conceptual model was found applicable to all types of relationship.