Industrial Marketing Management 32 (2003) 159 169

Functions of industrial supplier relationships and their impact

on relationship quality
Achim Waltera,*, Thilo A. Mullerb,1, Gabriele Helfertc,2, Thomas Ritterd,3
a

Institute for Corporate Strategy and Innovation Management, University of Karlsruhe, D-76128 Karlsruhe, Germany
Technical University Berlin, Institute for Technology and Innovation Management, HAD 29, Hardenbergstrasse 4-5, D-10623 Berlin, Germany
c
Marketforce GmbH, Adickesallee 63, D-60322 Frankfurt/Main, Germany
d
Department of International Economics and Management, Copenhagen Business School, Howitzvej 60, DK-2000 Frederiksberg, Denmark

Abstract
Although recent scholarly work on business relationships often discusses relationship quality as a major issue, especially with regard to
the phenomenon of vendor stratification, there is still little empirical research on this important construct. In this paper, the authors provide a
thorough conceptualization of relationship quality and its possible antecedents, i.e., the direct and indirect functions of the relationship for the
customer. Drawing on an empirical base of 230 buyer questionnaires, the authors show that the extent to which a supplier fulfills direct and
indirect functions in a relationship has a direct positive impact on the relationship quality perceived by the customer. This impact is especially
strong when the customer can easily replace the supplier or, in other words, when the supplier faces competition. The findings are discussed
and the authors provide managerial implications for decision-makers from both buyer and supplier organizations.
D 2002 Elsevier Science Inc. All rights reserved.
Keywords: Functions of relationships; Customer-supplier relationships; Relationship quality; Trust; Commitment; Satisfaction; Vendor satisfaction

1. Introduction
In business-to-business markets, long-term orientation has
become one of the main issues in relationships between
customers and their suppliers (e.g., Refs. [18,24,37]). Durable relationships with selected suppliers are seen as sources
of a stronger competitive position. Long-term relationships
with suppliers enable firms to be more efficient in procurement as well as more effective in delivering quality and/or in
reducing transaction costs [46]. As a consequence, companies are beginning to formally acknowledge and reward differences among their qualified suppliers in order to develop and
sustain long-term, cooperative relationships [20].
To develop a set of relationships with qualified suppliers
that strengthen the competitive position, customers must be
able to recognize important differences between these sup* Corresponding author. Tel.: +49-721-608-3433; fax: +49-721-6086046.
E-mail addresses: achim.walter@wiwi.uni-karlsruhe.de (A. Walter),
thilo.mueller@tim.tu-berlin.de (T.A. Muller),
gabi_helfert@force-group.com (G. Helfert), tr.int@cbs.dk (T. Ritter).
1
Tel.: + 49-30-314-26088; fax: + 49-30-314-26089.
2
Tel.: + 49-69-95930-244; fax: + 49-69-95930-333.
3
Tel.: + 45-3815-2518; fax: + 45-3815-2500.

pliers. As a meaningful construct that captures integral

features of a supplier relationship, the concept of relationship quality from a customers perspective has received
increasing attention by researchers during the past decade
(e.g., Refs. [18,39,40]). Dorsch et al. [20] found in their
study that relationship quality can be used as a basis for the
development and implementation of effective preferred
supplier programs. Findings of Crosby et al. [18] suggest
that a customers perceived relationship quality contributes
to a lasting bond with the supplier. Relationship quality is a
higher-order construct often encompassing three distinct,
although related dimensions of business relationships: trust,
commitment and satisfaction [20]. The determination of
relationship quality with a supplier is an important point
when the customer decides about developing and maintaining a long-term relationship with this supplier or not.
Given the variation in relationship quality an important
question arises from a managerial perspective: What are the
suppliers inputs that lead to a high relationship quality? In
order to identify noticeable antecedents of relationship quality that allows industrial customers a more strategic management and selection of important supplier relationships, a
functional view on relationships is helpful. Scholars already
presented various approaches to describe relationship func-

0019-8501/02/$ see front matter D 2002 Elsevier Science Inc. All rights reserved.
PII: S 0 0 1 9 - 8 5 0 1 ( 0 2 ) 0 0 2 3 0 - 4

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A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

tions in business-to-business markets [2,15,29]. In our study,

we propose a concept of direct and indirect functions of
supplier relationships and we analyze their impact on relationship quality.
In Section 2, we will present our conceptualization of
the major theoretical constructs of the study: direct and
indirect functions in a supplier relationship, and relationship quality. Furthermore, we introduce the theoretical
framework of the constructs and hypotheses. In Section
3, we will provide a description of the sample, the method
and the outcomes of our empirical study. Finally, we
discuss theoretical and managerial implications as well as
limitations of our study.

2. The model
The model incorporating the research hypotheses is shown
in Fig. 1. Direct and indirect functions of industrial supplier
relationships are hypothesized to be related to relationship
quality perceived by the customer. Moreover, we hypothesize
that functions of industrial supplier relationships are moderated by the availability of alternative suppliers.
2.1. Relationship quality
In a highly competitive environment, customers are
enhancing their efforts to maintain long-term relationships
with selected suppliers in order to reduce transactions costs
and/or the uncertainty of future benefits [18]. However, a
relationship between two firms is not dichotomous, i.e., on
or off. Rather, relationships can differ in many respects. In
order to capture such differences, the concept of relationship

quality is discussed in different studies (e.g., Refs.

[20,39,40]). Naude and Buttle [43] point out that there is
not one measure of relationship quality but it is a multidimensional construct. However, different dimensions need
to be combined to an overall relationship quality measure.
This is especially relevant as Naude and Buttle find different
clusters of good relationships each highlighting different
aspects of quality. As such there are not only different
dimensions but also different perceptions of what is good
or bad. Subsequently, different authors have defined this
concept rather differently.
Crosby et al. [18] consider relationship quality as a
higher-order construct including trust and satisfaction. In
their study of the effects of supplier fairness, Kumar et al.
[39] add commitment and conflict to their conceptualization.
Dorsch et al. [20] consider opportunism, customer orientation and ethical profile to define relationship quality. Referring to Crosby et al. [18] and Dorsch et al. [20], in a businessto-business context, we believe customer satisfaction, trust
and commitment to be the essential constructs in order to
describe what relationship quality is from the customers
point of view.
2.1.1. Commitment
Commitment has been acknowledged in relationship
marketing literature to be an integral part of any long-term
business relationship (cf. Refs. [3,27,42]). Generally, it is
described as a kind of lasting intention to build and maintain
a long-term relationship (e.g., Refs. [3,21,41]). Along with
Gundlach et al. [27], we believe commitment to entail three
different dimensions: affective commitment describes a
positive attitude towards the future existence of the relationship. Instrumental commitment is shown whenever

Fig. 1. Functions of industrial supplier relationships and relationship quality.

A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

some form of investment (time, other resources) in the

relationship is made. Finally, the temporal dimension of
commitment indicates that the relationship exists over time
(cf. also Ref. [25]).
2.1.2. Trust
Just like commitment, trust is one of the most widely
examined and confirmed constructs in relationship marketing research (cf. Refs. [18,25,41,42,49]). Common to all
different definitions used to conceptualize trust there is the
notion that trust constitutes the belief, attitude or expectation
of a party that the relationship partners behavior or its
outcomes will be for the trusting partys own benefit [1].
Summarizing the conceptual approaches of other scholars,
we believe trust to have three essential components: (1) the
belief that the relationship partner will show benevolence in
his or her actions [3,26], (2) honesty, which means that the
trusting party relies to the relationship partner being credible
(e.g., Refs. [19,24]), (3) the belief that the relationship
partner has the competence to act for the benefit of the
relationship (cf. Refs. [1,24,41]).
2.1.3. Customer satisfaction
Customer satisfaction has been discussed extensively as a
central element of a firms marketing concept during the
past two decades (cf. [6,17,47]. In market research, there is a
tendency towards a cumulative view of satisfaction, measuring the general level of satisfaction based on all experiences with the firm [25]. Anderson and Narus (Ref. [7], p.
66) define satisfaction as a positive affective state resulting
from the appraisal of all aspects of a firms working
relationship with another firm.
2.2. Direct functions of a supplier relationship
As all business relationships are maintained for economic
reasons [31]or, in other words, relationships fulfill a
function. Regarding supplier customer relationships functions offered by the supplier are inputs into the customers
operations and as such contribute to the overall system. If
the benefit of a relationship is realized within that relationship, we talk about direct functions [48]. This means that the
fulfillment of the function does not depend on other relationships or other actors. This situation has also been labeled
as first order [29] or primary [4] functions.
Regarding direct functions, we can distinguish the following four different areas where a customer gains benefits
from a supplier relationship.
A major determinant of the customers profitability is the
amount of money spent on goods and services. This
importance has increased dramatically in the past decade
due to a trend towards outsourcing. Therefore, customers
look for low procurement prices while trying not to compromise on quality. Building relationships is one way of
working together to achieve price reductions. When a
relationship provides a platform for low purchasing prices

161

the cost reduction function is fulfilled. This function mirrors

the profit function for suppliers [37,48].
But customers are not only interested in price. Customers
can have benefits through the exchanged offering itself in
various ways. In some cases, the supplied product is an
important part of the customers offering (like the microprocessor to a computer or the engine to an aircraft) and as
such contributes (or reduces in negative cases) the quality
the customer produces for his/her customers. Furthermore,
taking a view inside the customers operations, the product
might support operations by being reliable (manufacturing
machinery), easy to use (low handling costs) or easy to
maintainissues which directly impact the processes and
the profitability of the customer. We term the issues around
the benefits from offerings quality function.
In addition to cost reduction and quality, customers do
benefit from buying large quantities. This means that firms
move from wide supplier bases with fragmented purchasing
power to smaller supplier bases if not even single source
arrangements. Obviously, volume and price are related, as
suppliers normally offer discounts for higher numbers.
Besides price impacts allocating larger purchases to selected
suppliers allows customers to influence the suppliers more,
to gain consistency within the supply (no variations between
suppliers) and to reduce communication costs by focusing
on one rather than on many suppliers. Such arrangements
are also used in order to secure access to scarce resources.
Overall, the customer will have a peace of mind by
knowing that a substantial amount of material is provided
by a supplier with whom a good working relationship exists.
This benefit is termed volume function.
Even though firms do have their preferred suppliers and
gain benefits through volume, they establish additional links
to other firms which will enable them to secure their
position if one supplier fails to deliver. This failure can be
related to all of the above a failure in cost reduction, in
quality and in volume. Given the dynamics and uncertainties of todays markets, customers might need to rely on
rescue suppliers when demand changes in size or specification. Contacts to potential suppliers can be seen as an
insurance [28] or a back-up but can also decrease the
dependence of the customer on the supplier. We consider
this as the safeguard function of a relationship, which also
exists from a suppliers perspective (Ref. [48]).
2.3. Indirect relationship functions of a supplier relationship
In contrast to the direct functions of business relationships explained above, indirect functions are beneficial for
the customer only in other relationships or in the future. As
such, there is no direct gain for the customer. Such functions
have also been called second/third-order [29] or secondary
[4] functions. Again, four different indirect functions can be
distinguished.
We consider a supplier to fulfill a market function when
he helps the customer to establish contacts with new,

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A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

potential exchange partners [31]. These contacts can be with

other suppliers but also with, e.g., customers, industry
associations or governmental institutions. Hereby, the supplier can take an active role by bringing the customer
together with potential partners. However, customers often
use relationships with prestigious suppliers as references
and, thus, the supplier plays a more passive role.
Suppliers can also fulfill a scout function by passing on
technical, exchange, or market-related information. This is
especially of interest because firms need information about
their environment and sense their markets in order to
maneuver successfully. Suppliers have more insight into
particular areas or have a long-standing experience (e.g., in
their industry) they can share with a customer. Information
given by known sources is considered to be reliable, true,
meaningful and relevant.
Moreover, suppliers can support customers innovation
activities and as such fulfill an innovation development
function (e.g., Ref. [38]). This innovation support can have
many faces: passing on innovative ideas, supplying innovative components and production facilities or engaging in a
collaborative development project. By using suppliers
resources, customers can speed up their development process, engage in larger, riskier and long-term oriented projects and also have more technological input.
Finally, we consider the social support function of a
relationship as an indirect one. Social aspects are important
because the mutual orientation among firms is principally
a mutual orientation among individual actors in those firms
[34]. Working with cooperative and supportive partners will
create a good working atmosphere. Relationships are maintained because of their personal bondsbecause people like
to do business with each other. Individuals see the involvement in such relationships as a source of power, motivation
and creativity, which in turn will fuel economic measure in
the future or somewhere else [13]. Therefore, the social
functions of relationships are seen as indirect functions.
2.4. The impact of relationship functions on relationship
quality
The fulfillment of relationship functions means that a
customer gains a certain functional input for his operations.
This input contributes to a positive development of all three
elements of relationship quality: trust, commitment and
satisfaction.
Looking at the trust dimension, we argue that through the
suppliers fulfillment of functions the customer receives an
actual proof of the suppliers abilities. The provision of
positive experiences of the suppliers expertise, i.e., fulfilling the functions, is an effective way for a supplier to make
the customer believe in his or her honesty, competence and
benevolence [40]. This contributes to both the customers
trust in the problem solving ability of the supplier (the
supplier can actually do things), and it also increases trust in
the suppliers transfer ability and willingness (the supplier

delivers to the customer). Thus, there is a solid basis for the

customer trusting in the technical expertise as well as the
goodwill of the supplier. As these two dimensions are the
building blocks of trust, there is a positive relation between
function fulfillment and the customers overall trust. If, on
the other side, a supplier is not perceived to be benevolent,
honest or competent by failing to fulfill functions, the
customer cannot rely on this supplier and thus will show
no trust and commitment towards the relationship [42].
Based on the increasing level of trust, the customer is
likely to develop a long-term view of the relationship because
he believes the supplier to be a partner for future transaction.
Commitment and trust may only develop when the customer
has confidence in an exchange partners reliability and
integrity (Ref. [42], p. 23). Through fulfilling the functions
a supplier can position himself as a credible partner. Also, the
suppliers function fulfillment can be seen as the suppliers
investment into the relationship. Such investments are
acknowledged by the customers attitudinal intention to
develop and sustain a long-term relationship as well as a
willingness to invest in the relationship to gain the function
fulfillment in the long run. Furthermore, given that the
functions are essential for the customer, the customer is more
likely to make short-term sacrifices in a relationship, which
offers him these functions than in relationships where functions are not (or to a lesser degree) fulfilled.
Fulfillment of functions will also add to a customers
satisfaction because the customer has actually received
something. Taking the Anderson and Narus (Ref. [7], p.
66) definition of satisfaction as a positive affective state
resulting from the appraisal of all aspects a firms working
relationship with another firm, we argue that the functions
are some of the very central aspects a customer would look
at (others might be costs and relationship management
issues). Kumar et al. [39] show that different aspects of
perceived fairness contribute to relationship quality. Taking
up this argument, we can assume that when a supplier
fulfills functions the customer will see this as a fair
contribution and will be satisfied with the relationship.
Thus, as shown by Kumar et al. [39], function fulfillment
contributes to relationship quality.
Hypothesis 1: Increasing fulfillment of the direct relationship functions for the customer increases the relationship
quality perceived by the customer.
Hypothesis 2: Increasing fulfillment of the indirect relationship functions for the customer increases the relationship quality perceived by the customer.
Business relationships are complex in nature and influenced by the context in which the exchange processes
between the partner firms take place [28]. Thus, it could
be expected that different market and situational factors do
moderate the role and importance of relationship functions
for relationship quality. Although a variety of supply market
factors may impact the development and output of relation-

A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

ships, the availability of alternatives (replaceability) and in

this context the comparison level of alternatives (Clalt) is
cited widely across different streams of marketing literature
(e.g., Refs. [8,16]). Availability of alternatives is the degree
to which a customer firm has alternative sources of its
needed resources. Clalt can be referred to as a standard
that represents the overall quality of outcomes (. . .) available to a customer from the best alternative relationship
with a supplier (Ref. [8], p. 43). Missing a readily available
source of supply may be a source of uncertainty and
dependence [44].
We argue that whereas customers in general acknowledge a suppliers fulfillment of direct and indirect relationship functions, they are likely to place greater importance on
such functions when the availability of alternative suppliers
is relatively high. When many suppliers compete to sell
goods to a customer, it is easier to get reasonable prices,
quality, know-how and market information. At the same
time, those input factors are more important for a customer
firm to develop and sustain their competitive advantage.
Therefore, the linkages between supplier relationship functions and relationship quality are likely to be stronger when
the customer has more alternative suppliers. Stated formally:
Hypothesis 1: The impact of direct and indirect supplier
relationship functions on a customers perceived relationship quality is stronger when the customer has alternative
sources of supply.

3. Empirical study
3.1. Data collection and sample
The level of analysis of this study is a specific supplier customer relationship. According to the research
questions, we chose to seek data from the customers
vantage point. We prepared a six-page questionnaire to
be completed by a purchasing professional. Usually, it is a
purchasing professionals responsibility to be well
informed about certain supplier relationships [16]. Almost
all of the questions focused on the relationship between the
customer firm and a specific supplier. The questionnaire
directions explained that the questions should be answered
with respect to a manufacturing supplier who was sufficiently important to warrant relational exchange behaviors.
The directions also noted that the respondents should not
be concerned about whether their firm is more or less
satisfied by this supplier. The respondents should directly
and continuously be involved in the supplier relationships
for at least 1 year.
The study questionnaire was mailed to 560 appropriate
informants in German companies who were initially contacted by phone and motivated to complete the questionnaire. The telephone calls were also made to identify the
persons who were most competent to report on the con-

163

structs being investigated. The identified key informants

typically held the title of purchasing manager or purchasing
agent. Follow-up reminders were mailed to each informant
three weeks after the primary mailing. We sampled a broad
range of industries using a commercial list, including both
consumer and industrial goods manufacturers. A total of
230 usable questionnaires were obtained that represent a
41.1% response rate.
Most of the customers came from the sectors vehicle
manufacturing (23.1%), mechanical engineering (21.8%),
electronics industry (13.3%), metal-processing industry
(8.0%) and chemical industry (5.8%). The suppliers of these
respondents were all manufacturers and mainly stemmed
from the electronics industry (46.3%), the mechanical
engineering (23.9%) and the chemical industry (7.3%).
The average number of employees on the part of the
customers was 1345. The supplier companies employed
385 persons on average.
3.2. Measures
The scales employed in the present study were either
developed specifically for this study or adapted from existing scales to suit the context of the present study. We started
by developing an initial pool of scale items based on a
thorough review of literature and five extended interviews
with marketing and purchasing personnel who were
responsible for the management of supplier customer relationships. The wordings of the scale items were refined on
the basis of a pilot study with eight purchasing managers
(three of them already participated in the extended interviews). We conducted personal interviews that lasted 50 min
on average. All scales were pretested in three successive
rounds. In each round, two to three interviewees were asked
to complete the questionnaire. The managers answered the
questionnaire and verbalized any thoughts that came to
mind. The items were revised following each interview
round. At the end of round three, the feedback from the
respondents indicated that the scale items were clear, meaningful and relevant.
All constructs were measured using seven-point multiple-item scales. A complete listing of the scales used in the
study is provided in Appendix A. The final model includes
11 measures for the three constructs as well as one item for
the availability of alternatives. We used traditional and
advanced psychometric approaches to evaluate scale properties. The proposed reflective measures were purified by
assessing their reliability and unidimensionality. Measurement development followed procedures recommended by
Anderson and Gerbing [5]. First, item-to-total correlation
was examined in each of the proposed scales and items with
low correlation were deleted if they tapped no additional
domain of interest. To help ensure unidimensionality, items
in each multiitem scale were factor-analyzed separately.
Customer satisfaction with the supplier was measured
with four items, ranging from strongly disagree to

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A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

strongly agree. The first item captured a comparison of the

focal supplier with an ideal relational partner (cf. Ref. [22]).
The second and the third item assessed aspects of the overall
satisfaction of the customer with the supplier (cf. Ref. [16]).
As satisfaction stems from the confirmation or disconfirmation of expectations (cf. Ref. [33]) we asked respondents to
what degree their expectations of the outcomes of the
relationship with the supplier had been confirmed.
The customers trust in the supplier was measured by six
items. All items were scored on a seven-point scale, ranging
from strongly disagree to strongly agree. Adapted
from scales of Kumar et al. [39] and Ganesan [24], these
items were related to honesty, benevolence, and competence
of the supplier.
The customers commitment to the supplier relationship
was measured using a 5-item scale adapted from Anderson
and Weitzs [3] and Ganesans [24] studies. These items tap
the multiple facets of commitment incorporated in our
definition, including the customers loyalty, willingness to
make short-term sacrifices, long-term orientation and intention to invest in the relationship.
Consistent with our theoretical argument, the measurement model for the 14 relationship quality items was
conceptualized as a second-order factor model. Using LISREL 8 [36] with the covariance matrix as input, each of the
items loaded appropriately on one of the three first-order
constructs. All first-order and second-order factor loadings
were significant, indicating convergent validity. The average
variance extracted was greater than 0.50 in all cases and
greater than the squared structural link between the constructs, which indicates discriminant validity.
In this study the direct functions of a supplier relationship were measured using eleven items. Following the
research of Hakansson and Turnbull [31] and Sheth and
Sharma [46], these items assessed several key features of
direct value creation in supplier relationships: A cost reduction function (two items), volume function (two items),
quality function (four items) and a safeguard function (three
items). A second-order factor analysis revealed that each
item loaded appropriately on one of the four first-order
constructs, with the first-order factors originating from the
second-order factor of direct function of a supplier relationship. All first-order and second-order factor loadings were
significant. In all cases, the average variance extracted was
greater than 0.50 and greater than the squared correlations
between the constructs.
The indirect functions of a supplier relationship were
measured using seventeen items. Following the research of
Anderson et al. [2], Hakansson and Snehota [30] and
Hakansson and Turnbull [31], these items assessed several
key features of indirect value creation in supplier relationships: a market function (four items), scout function (four
items), innovation development function (four items) and a
social function (five items). A second-order factor analysis
confirmed the theoretically conceptualized structure of the
construct indirect functions of a supplier relationship. All

first-order and second-order factor loadings were significant. The average variance extracted was greater than 0.50 in
all cases and greater than the squared structural link between
the constructs.
We also used LISREL to test the measurement model of
our proposed structural model. A confirmatory factor analysis was conducted with a covariance matrix as the input.
The fit indices suggested by Joreskog and Sorbom [36] and
Bentler [12] were used to assess the model adequacy. The
estimates generated by LISREL 8 provided evidence of an
adequate model fit (C (41) 2 = 111, P=.000; GFI=.917,
AGFI=.866, CFI=.917, RMSEA=.089). Although the C 2
is significant, it is not necessarily an indicator of poor fit [9].
Following a recommendation by Joreskog and Sorbom [36],
the ratio of the chi square statistic over the degrees of
freedom was used as a measure of overall goodness-of-fit.
We consider the overall fit of the model to be satisfactory as
the measure is 2.7. This assessment is supported by the GFI,
AGFI and CFI for which a minimum value of .9 usually is
considered to be acceptable [9,11]. For the RMSEA, usually
values up to .08 are considered to indicate reasonable model
fit [14].
Table 1 contains standardized ML parameter estimates
for the measurement model, proportions of variance
extracted, construct reliability values and Cronbachs A
values. All items exhibit reasonably high reliabilities. All
Cronbachs As exceed the threshold value of .7. In all but
one case, the average variance extracted exceeds the threshold values of .5 and .7; the construct reliabilities all exceed
the threshold value [23]. Support for discriminant validity
was provided by a series of model estimations in which the
individual factor correlation was constrained to unity one at
a time [10]. The conducted chi-square difference tests were
all significant ( P < .001). Discriminant validity between the
three factors is also given applying the criterion suggested

Table 1
Confirmatory factor analysis results
Factor/
item

Standardized Explained
Average Construct Cronbachs
factor
total variance variance reliability a
loading
(exploratory
extracted
factor analysis)

Relationship quality
RQ1 .84***
RQ2 .51***
RQ3 .72***
Direct functions
DF1 .61***
DF2 .64***
DF3 .64***
DF4 .59***
Indirect functions
IDF1 .70***
IDF2 .74***
IDF3 .70***
IDF4 .86***

.64

.50

.74

.71

.55

.39

.71

.70

.67

.57

.84

.84

*** Parameter estimates are significant at the .001 level.

A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

by Fornell and Larcker [23]. Thus, the measurement model

results can be interpreted as acceptable. Appendix B reports
correlations among the constructs.
The availability of alternative suppliers was measured
using a single item. Marketing scholars have used the
variable availability of alternative sources of exchange, or
in other words, replaceability, often as a measure of
dependence [26]. This item was measured using a sevenpoint scale ranging from strongly disagree to strongly
agree.
3.3. Hypotheses tests

165

Table 3
Regression results for relationship quality
Independent variable

Dependent variable
Relationship quality

Direct functions of a supplier relationship

Indirect functions of a supplier relationship
Availability of alternative suppliers
Direct functions  availability of alternatives
Indirect functions  availability of alternatives
R2
F
N

0.30* *
0.28* *
 0.31* *
0.12 *
0.09 *
0.40
30.33* *
230

* P < .05 (one-tailed test).

** P < .01 (one-tailed test).

Tests of the hypotheses were then performed using a

structural equation model. This model, too, reflected an
acceptable fit to the data. All of the relationships predicted
in the structural model were found to be in the hypothesized
direction. Furthermore, the model explains a substantial
portion of the variance (SMC) of the endogenous variable
relationship quality (41%).
The standardized solution estimated by the LISREL 8
program was used for interpreting the structural relations
results (Table 2). As was expected in Hypotheses 1 and 2,
direct and indirect functions of a supplier relationship were
found to be significant predictors of customer perceived
relationship quality (Hypothesis 1 supported: P < .01; Hypothesis 2 supported: P < .05).
A regression analysis for the moderating effect of availability of alternative supply sources (Hypothesis 3) was
performed by adding the moderator variable along with the
interaction terms involving the moderator and the direct/
indirect functions to the regression equation. The results of
the analysis are reported in Table 3.
The regression analysis reveals that both direct and
indirect functions of supplier relationships have a stronger
influence on relationship quality when the availability of
alternative suppliers is relatively high ( P < .05). This finding
is consistent with Hypothesis 3. Moreover, there is a strong
negative effect of the availability of alternative suppliers
(replaceability) on relationship quality perceived by the

Table 2
Parameter estimates of the LISREL model
Proposed model
Path

Estimate
(standardized)

t value

Direct functions of a supplier

relationship ! relationship quality
Indirect functions of a supplier
relationship ! relationship quality
2
c(41)
= 111, P=.000
GFI=.917
AGFI=.866
CFI=.917
RMSEA=.089

0.517

4.51

0.188

2.01

customer. The latter finding is consistent with previous

studies of marketing channels which have found that high
total interdependence has a positive effect on attitudes of
channel members (e.g., trust, affective commitment) [26,39].
A customer with scarce resources and/or time pressure is
expected to be most interested to devoting his time to and
working with his suppliers he is more dependent on. Cannon
and Perrault [16] found in their study of buyer seller relationships that mutually adaptive and cooperative forms of
relational exchange between partners are more likely to
emerge when there are few alternative suppliers.

4. Discussion
Up to this point, only few scholars have examined the
antecedents of relationship quality perceived by customers
empirically. In this paper, we have argued and found
empirical evidence that the suppliers fulfillment of direct
and indirect relationship functions for the customer definitely matters for the customers perception of relationship
quality. The more a customer finds a given supplier to
fulfill direct functions, like reducing purchasing costs,
delivering quality, covering a large volume or serving as
a safeguard, as well as indirect functions, like gaining
access to the market by the supplier relationship, using
the suppliers information base, inspiring innovation
through the supplier or simply enjoying the social benefits
of the relationship, the higher he or she will perceive the
quality of this relationship. Perceived quality depends on
functional inputs.
Furthermore, the paper makes an innovative contribution
with regard to construct measurement. Relationship quality
as perceived by the customer was determined by secondorder factoring of the well-researched constructs customer
satisfaction, customer trust and customer commitment, thus,
making use of existing measurement concepts and still
maintaining conceptual novelty. For the direct and indirect
functions of a supplier relationship, we thoroughly
developed valid measurement scales that may well be used
for further research in this area.

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A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

Our further analysis shows that the impact of function

fulfillment on perceived relationship quality is moderated by
the degree of replaceablility. This result is important in two
ways: Firstly, it shows that customers base their evaluation
not only on functions (even though functions are very
important) but also on network effects. The quality of a
given relationship is influenced by the possibility of building other, complementary relationships. Secondly, the role
of function fulfillment is even more important when there is
competition in the supply base. This indicates that the
independent customer needs more input from a supplier to
perceive the same level of relationship quality than the
dependent customer.
There is no empirical study without certain limitations. In
our study, we have shown that customer perceived relationship quality is positively influenced by direct and indirect
functions of a supplier relationship. We gathered our data by
interviewing a single person in each customer company,
because we believe that the customers perceived relationship quality as well as the direct and indirect functions of the
supplier relationship can best be measured by asking the
customer directly. However, given that relationships are
normally maintained by a group of persons [8,32], single
informants may inform only about their own view of the
relationship. A richer picture can therefore be drawn by
asking further persons involved. It could be assumed that
the variation in assessing a relationships function fulfillment and quality depends on the functional background of
the person. In this study, we needed to achieve good data by
finding respondents who had longer experiences with the
relationship and who were also well informed about the
relationships different aspects. This so-called key informant
approach is very common and also accepted in marketing
research (cf. Refs. [35,45]) even though it bears limitations.
In the study, we used data from German companies. One
could assume that relationship quality might be perceived in
a different way in other countries, e.g., in Japan commitment may be much more an initially given attitude towards
relationships than in Western countries.
With our model we have explained a considerable
amount of variance of relationship quality. Nevertheless,
the model didnt account for the total variance of this
construct. Relationship quality is a very complex matter,
which is certainly influenced by a whole bundle of different
predictors. In this paper, we had to restrict on measuring
those variables relevant to confirm our hypotheses. In earlier
studies, other variables like, e.g., outcomes given alternatives have proven to account for the variance of relationship
quality as well (e.g., Ref. [39]). Further research could also
look into factors describing the market situation in terms of
technological turbulence and market turbulence. Therefore,
it is understandable that portions of the variance of relationship quality had to remain unexplained in our study and
that a more complex model needs to be developed.
Also, we have looked at predictors of customers perceived quality. But the chain of effects could be lengthened

because the customers perception may have an impact on

his actions, which in turn will influence the supplier again.
For example, customers with a high-perceived relationship
quality may offer more to their suppliers, which might
increase the suppliers perceived quality. In this way, the
supplier will be even prepared and motivated to offer even
more functions to the customer. As such, there could be a
feedback loop.
Finally, in our study, we have focused on manufacturer
customer relationships. If we would have looked at relationships between service providers and their customers or at
channel relationships, there might have been different
results as the nature of these relationships is also different.
In other relationships, e.g., there might be a stronger
influence of the power imbalance than in our sample:
Service companies in certain industries are much easier to
replace than manufacturers. The same holds true for retailers
and manufacturers: In these relationships, there are also
much less lock-in effects for a retailer than for a user of the
products in question. Therefore, the variables we have
examined might not account for such a high part of the
variance of relationship quality, which means that our
findings can only be generalized to relationships in other
industries to a certain amount.

5. Managerial implications
From the customers point of view, the research presented in this paper offers a guideline to what to expect from
suppliers. Customers can use the developed functions and
analyze how much a given relationship offers. This is of
special importance when the customer can choose between
alternatives. As such, our research can be used as a supplier
base stratification tool.
The paper also gives strong support for a phenomenon that
has been gaining increasing attention through the past couple
of years: The fact that especially large buyers tend to
concentrate on a few suppliers and to encourage these
business relationships by designing preferred supplier programs because only through relationships the discussed
functions may be fulfilled. Nevertheless, single sourcing
bears risks. Relying on a small selection of suppliers increases
the dependence on these relationships. Supplier relationships,
as we have shown, can make a variety of valuable contributions, but also tend to tie up resources, especially when a
customer utilizes their indirect functions. Therefore, we
recommend a systematic supplier management by all means:
Not only selecting, but also permanently asking for inputs.
For the supplier side, our research also bears a couple of
useful implications: First of all, every supplier should be
aware that a customers perceived relationship quality will
be highest when both direct and indirect functions are
fulfilled. This does not necessarily mean that all functions
have to be fulfilled in every relationship. Suppliers should
try to figure out individual preferences of their customers (or

A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

customer types) and fulfill the functions individually. Especially suppliers in highly competitive markets will usually
be confronted with high expectations from their customers.
Fulfilling the relationship functions, we discussed is an
effective way to create strong bonds and thus gain competitive advantage.
Our findings indicate that customers who depend on their
supplier have a lower esteem of the positive impact of the
relationship functions. As the fulfillment of relationship
functions ties up a suppliers resources and those customers
are locked in anyway, is it less important to fulfill relationship
functions for highly dependent customers? We dont believe
so for two reasons. Firstly, when a supplier fails to fulfill the
functions he actually becomes replaceable! As such, overstretching the fact that a customer depends can turn into the
opposite. Secondly, it is even more important to straighten out
the performance base along the customers actual expectations and needs in order to spend resources adequately when
the customer depends on the supplier. Moreover, with regard
to a long-term relationship, further action will most likely be
necessary in highly dependent customer relationships, as
customers normally do not like to be too dependent. Findings
by Kumar et al. [39] indicate that supplier fairness toward
vulnerable resellers has a strong impact on the relationship
quality. They distinguish distributive and procedural fairness
and can show that especially procedural fairness is very
important for the customers perception of relationship quality. This goes along with our findings. The message, therefore, is: Increase the dependence of customers as it
contributes to the perceived relationship quality, but do not
base a relationship on dependency only.
Finally, suppliers should be aware of the growing tendency toward vendor stratification in the customer market. To
make sure that they will keep their regular piece of cake,
they should strategically review what they currently do for
their customers and identify opportunities to extend their
value base to areas currently uncovered. Taking a closer
look at competitors, their strategic behavior and their
performance base can provide useful hints towards possible
directions to pursue. Moreover, suppliers should ensure that
not alone they see what they do for the client, but that the
decision-makers in the client organization also perceive their
contributions as relevant. Otherwise, they will not be able to
survive in a world of increasingly globalizing markets.

Appendix A
A.1. Measures
Suppliers can provide different benefits to their customers, e.g., covering a large demand volume, supplying
innovative products and/or deliver information on the procurement market. How do you rate the following potential
functions regarding your benefit of this supplier relationship? (1 = very little, 7 = very strong)

167

A.2. Direct functions of a supplier relationship (mean=4.65,

S.D.=0.97)
A.2.1. Cost reduction function
CRF1: Products that are good value for money.
CRF2: Low purchasing prices.
A.2.2. Volume function
VF1: Long-term delivery promises for the products
delivered.
VF2: Complete coverage of your total demand for the
products.
A.2.3. Quality function
QF1:
QF2:
QF3:
QF4:

Functionality of the products delivered.

Reliability of the products delivered.
Stable value of the products delivered.
Realization of your product requirements.

A.2.4. Safeguard function

SGF1: Diminution of dependence from other suppliers.
SGF2: Opportunity of variable procurement volumes.
SGF3: Flexible handling of supply agreements.
A.3. Indirect functions of a supplier relationship
(mean=3.64, S.D.=1.23)
A.3.1. Market function
MF1: Intermediation of contacts to prospective customers of your company.
MF2: Intermediation of contacts to prospective other
suppliers of your.
MF3: Intermediation of contacts to relevant third parties
(e.g., technology companies, consultants, marketing service providers, etc.).
MF4: Direct reference with possible business partners.
A.3.2. Scout function
SF1: Information on your procurement market.
SF2: Information on your competitors.
SF3: Information on relevant third parties (e.g., technology companies, consultants, marketing service
providers, etc.).
SF4: Information on developments in your market.
A.3.3. Innovation development function
IDF1: Ideas for new products/services of your company.

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A. Walter et al. / Industrial Marketing Management 32 (2003) 159169

IDF2: Development of your products/services.

IDF3: Development of your manufacturing processes.
IDF4: New technological know-how for your company.
A.3.4. Social support function
SSF1: Appreciation for employees of co-workers.
SSF2: Appreciation for employees of third parties
(customers, suppliers, etc.).
SSF3: Encouragement of professional communication
exchange between employees.
SSF4: Motivation for employees regarding their tasks.
SSF5: Employment security for employees.
A.4. Relationship quality (mean=4.87, S.D.=0.98)
A.4.1. Customer satisfaction (1=strongly disagree,
7=strongly agree)
CS1: Compared to our ideal, we are very satisfied with
the performance of this supplier.
CS2: All in all, we are very satisfied with this supplier.
CS3: Our company is not completely satisfied with the
performance of this supplier (reverse scored).
CS4: With reference to our expectations, we are very
satisfied with this supplier.
A.4.2. Customer trust (1=strongly disagree, 7=strongly
agree)
CT1: When making important decisions, the supplier is
concerned about our welfare.
CT2: We can rely on the supplier handling critical
information on our company confidentially.
CT3: When we have an important requirement, we can
depend on the suppliers support.
CT4: We are convinced that this customer performs its
tasks professionally.
CT5: The supplier is not always honest to us. (reverse
scored)
CT6: We can count on the suppliers promises made to
our firm.
A.4.3. Customer commitment (1=strongly disagree,
7=strongly agree)
CC1: We focus on long-term goals in this relationship.
CC2: We are willing to invest time and other resources
into the relationship with this ysupplier.
CC3: We put the long-term cooperation with this
customer before our short-term profit.
CC4: We expand our business with this supplier in the
future.
CC5: We defend this supplier when outsider criticizes the
company.

A.5. Availability of alternative suppliers (mean=3.63,

S.D.=1.51)
It would be easy to replace this supplier with an equally
qualified alternative. (1 = strongly disagree, 7 = strongly
agree).

Appendix B
Pearson correlations of measurement scales
Construct
1. Relationship quality
2. Direct functions of a
supplier relationship
3. Indirect functions of a
supplier relationship
4. Availability of
alternative suppliers

2
1.0
.46

1.0

.43

.45

 .44

 .21

1.0
 .16

1.0

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