Buyer-Supplier Relationships and Organizational Health
Buyer-Supplier Relationships
and Organizational Health
AUTHORS
Marie McHugh
is a professor of organizational behavior and head of the School of
Business Organization and Management at the University of Ulster
in the United Kingdom.
Paul Humphreys
is a reader in operations management within the School of Business
Organization and Management at the University of Ulster in the
United Kingdom.
Ronan McIvor
is a senior lecturer in e-commerce within the School of International
Business at the University of Ulster in the United Kingdom.
This article examines the relationship between orga-
nizational health and buyer-supplier relationships.
Contemporary research has emphasized the need for
organizations to move toward closer cooperation.
The decision to engage in partnership arrangements
is one that has major implications for buyers and
suppliers. Using evidence from an exploratory case
study, the challenges presented in
SUMMARY developing a close, cooperative,
and mutually beneficial trading
relationship between a buyer and a supplier, where
one partner, the buyer, is in a powerful position, are
investigated. It is argued that powerful buyers can
seriously damage organizational health. The find-
ings provide evidence that it is essential to promote
communication structures that encourage dialogue,
consultation, and employee participation in deci-
The Journal of Supply Chain
Management: A Global sionmaking. This is particularly important where
Review of Purchasing and
decisionmaking could benefit from the in-depth
Supply Copyright © May 2003,
by the Institute for Supply technical knowledge of middle and junior managers
Management, Inc.™
and shopfloor workers.
EXAM
Module 2
The Journal of Supply Chain Management | Spring 2003
INTRODUCTION
In recent years, the relationship between buyers and
suppliers has received considerable attention. Due to the
globalization of markets, corporate restructuring, and
increased focus on costs, quality, flexibility, and tech-
nology, an expanded role for procurement has emerged
(Burt, Dobler, and Starling 2003). Traditionally, pur-
chasing was considered a clerical function, where the
relationship between suppliers and buyers tended to be
adversarial. However, many organizations have moved
toward a more collaborative approach.
Gadde and Hakansson (1994) identified three key stra-
tegic purchasing issues: the make or buy decision, the
supply base structure, and the customer-supplier rela-
tionship. They and Cox (1996) emphasized the need
for organizations to move toward closer cooperation
in the buyer-supplier relationship. Market pressures for
increased product complexity and variety demonstrate
the ever-expanding need for a team-oriented mind-set.
Consequently, they need to supplement their core com-
petencies by allying with other providers of comple-
mentary competencies to satisfy their customers. The
real productivity, design, and quality improvements are
not obtainable unless the supplying partners innovate
to the best of their abilities. Hence, many manufacturers
recognize that their ability to become world-class com-
petitors is based to a great degree on their ability to
establish high levels of trust and cooperation with
their suppliers.
Indeed, the advantages of closer cooperation have been
cited by Magnet (1994) and Helper and Sako (1995), who
noted that closer relationships between customers and
suppliers have had beneficial effects on performance in a
number of areas. As a collaborative or partnership arrange-
ment between buyer and supplier, this requires a major
shift in the mind-set or operational paradigm, from what
has been termed arm’s-length contractual relationship
to obligational contractual relationship (Sako 1992).
The need for a reassessment of the nature of, and bene-
fits to be derived from, buyer-supplier relationships was
further argued by Kerwood (1995), who commented that
much of the current literature on effectiveness and success
suggests that success can only be achieved at the expense
15
Buyer-Supplier Relationships and Organizational Health
of others such as competitors, suppliers, and customers
(Jarillo 1988). However, theory and research from an
interorganizational relationship perspective have begun
to acknowledge the role of cooperation in organizational
success (Nielson 1988).
Many companies recognize that their ability to become
world-class competitors is based, to a great degree, on
their ability to establish high levels of trust and coopera-
tion with their suppliers (Buono 1997). With higher
standards of performance being demanded in each busi-
ness environment, companies are of necessity looking
to their suppliers to help them achieve a stronger com-
petitive position. Indeed, it has been suggested that in a
world of converging consumer tastes, rapidly spreading
technology, escalating fixed costs, and growing protec-
tionism, more collaborative relationships with suppliers
are critical instruments for serving customers in a global
environment (Ohmae 1989).
These views are endorsed by others who argue that the
basis of modern competition is continuous improvement
in products and processes (in other words, the simulta-
neous achievement of both efficiency and innovation).
The cooperative approach between buyers and suppliers
is based on recognition of mutual interest, particularly
where components provided by suppliers are a large pro-
portion of the cost of the final product. It involves assisting
the customer to provide a higher-quality, lower-priced
product, for example, through long-term supply relation-
ships, general management advice, and possibly through
research and development, training, and loan guarantees
(Hendry et al. 1995). Common aspects of customer-
supplier partnerships include: long-term relationships
based on trust and cooperation rather than competition
for each order, thereby giving the supplier a stronger
interest in the quality of the goods supplied; devolution
of design work to the supplier; cooperation to improve
performance and quality, sometimes involving advice
from the customer’s supplier development teams; and
target pricing in which the customer sets price reduc-
tions and helps the supplier to achieve them. In many
ways, it can be argued that these features of partnership
are highly similar to aspects of organizational processes
and functions that have been cited as characteristics of
the healthy organization. For example, the establish-
ment of good relationships, trust and cooperation, and
appropriate devolution cited as essential elements of
partnering by Boddy et al. (1998) have been frequently
linked to the healthy organization (De Vries and Miller
1990; Cox and Haworth 1990; Cooper and Williams
1994; Newell 1995).
ORGANIZATIONAL HEALTH
Organizational health is a poorly defined but widely
used concept (see, for example, De Vries and Miller
1990; Cox and Haworth 1990; Cooper and Williams
1994; Newell 1995; McHugh and Brotherton 2000).
16 The Journal of Supply Chain Management | Spring 2003
Despite its clouded definition, it conjures up positive
images of the organization, regardless of the indices
that one might use to measure “health” in organizational
terms. For example, an organization might be “finan-
cially healthy,” “strategically healthy,” “structurally
healthy,” “culturally healthy,” and/or “behaviorally
healthy.” Although the existing literature does not pro-
vide or permit a succinct definition of organizational
health, within this article the healthy organization is
considered to be one whose structure, culture, and man-
agement processes contribute to high levels of organiza-
tional performance. As part of this, it is believed that
individual and organizational health are interdependent
entities. Thus, indices of the healthy organization are
likely to include measures of employee stress and well-
being, employee satisfaction and commitment, the per-
ceived quality of management decisionmaking, the
appropriateness of structural arrangements, and finan-
cial indicators. One aspect of organizational health con-
cerns decisions regarding buyers and the development
of good buyer-supplier relationships of the partnership
variety referred to above.
BUYER-SUPPLIER RELATIONSHIPS AND
ORGANIZATIONAL HEALTH
Despite the wisdom of the arguments concerning the
formation of partnerships and the contribution that
buyer-supplier relationships make to organizational
health, it is important to point out that the necessary
levels of interfirm trust are not always present in the
buyer-supplier relationship to permit collaboration to
become a reality. The mistrust, which is often evident,
is the result of many years of broken promises, abuse
of confidence, and general acrimony within manufac-
turing industry (DTI 1989; Burnes and New 1997). As
such, partnership can in fact be a double-edged sword
where, although there is “security” in the relationship,
there is potential for a powerful partner (usually the buyer)
to show the strength of its muscles, squeezing the sub-
missive partner (usually the supplier), to such an extent
that it is potentially harmful to both sides in the relation-
ship. The squeezing is likely to manifest itself in, for
example, ever-increasing demands for higher quality at
lower costs and ever-shortening leadtimes (Porter 1980;
Miller and Dess 1996). One example of this is provided
by the trading relationship between the major toy retailer
Toys“R”Us and the manufacturer Mattel. The dominance
of the retailer in this partnership, reflected in, among
other things, its decision to drastically reduce inventory
stocks, has caused major problems for the supplier
(BusinessWeek 1999).
Such behavior is indicative of a lack of understanding
of the principles underlying the true meaning of partner-
ship as outlined by Partnership Sourcing (1990). Within
this, it is argued that customer and supplier work as part-
ners, believing that teamwork is better than combat,

and that “both must win” (ibid). In making partnerships
work in a healthy way, thus contributing to the creation
of healthy organizations, there is a need for the effective
formation and implementation of a web of interfunctional
relationships within each of the organizations (Kanter
1989). This must be accompanied by goal clarity between
buyer and supplier, a clear understanding and acceptance
of roles and responsibilities, and a sharing of ideas (Boddy
et al. 1998).
While initially it may be to the buyer’s advantage to
squeeze its supplying partner, the advantages are likely
to be short lived. Not only does excessive squeezing
potentially destroy the relationship between the buyer
and the supplier, but also it is likely to foster a state of
ill health within the supplier organization that is likely
to impact the buyer with the emergence of a vicious spiral
of negativity. The ill health within the supplier organi-
zation is likely to be caused by the excessive demands
being made by the buyer, which are passed down to
employees who, among other things, are in turn under
severe pressure to deliver enhanced quality in a shorter
time. More often than not, constantly responding as
and when required to a demanding supplier can cause
confusion, chaos, and interference with management
decisionmaking within the supplier organization.
Simultaneously, the supplier organization is trapped in a
trading relationship and its energies and resources are so
submerged in coping with this highly charged situation
that it has no opportunity to escape from the relation-
ship, or to rationally consider alternative ways of man-
aging its circumstances. While this in itself is unhealthy,
it may be argued that as an outcome of the unrelenting
pressure exerted by the powerful buyer, a cycle of nega-
tivity emerges whereby the excessive demands of the buyer
throw the supplier organization into a state of chaos and
confusion that negatively affects management processes
and functions. Being placed in a position where the sup-
plier is not able to cope with buyer demands is likely to
result in even more pressure being applied by the buyer,
which creates further difficulties for the supplier. Thus, a
vicious spiral of negativity emerges, the effects of which
become potentially more disastrous with each twist of
the spiral. Furthermore, as part of this spiral, the type of
trading liaison referred to above prevents the supplier
organization from having a direct relationship with the
market. This in turn prevents the development of a
strategic overview and reinforces dependencies.
Meanwhile, the powerful buyer may initially appear
unaffected by the ill health brewing within the supplier
organization. However, it is inevitable that the difficulties
experienced by the supplier will impact upon the buyer
itself in the form of, for example, delayed deliveries and
product quality problems, all of which ultimately affect the
overall health of the buyer. Thus, such a buyer-supplier
relationship is inherently problematic and displays all of
the hallmarks of a “partnership” where there is a lack of
Buyer-Supplier Relationships and Organizational Health
knowledge, understanding, and acceptance of the poten-
tial benefits for inter- and intra-organizational health
and well-being to be gained from collaboration. The
abuse of buyer power is a contradiction of the philos-
ophy of partnership advocated by Sako (1992) that has
been linked to organizational success (Neilson 1988)
and that works to erode the health of organizations.
Furthermore, it may be argued that the abuse of power
beyond a certain point may adversely affect the buying
company itself. In many respects, such a relationship is
akin to the nature of buyer-supplier relationships described
by Cox (1996), whereby each member of an organiza-
tional network will seek to do what is best for itself in
terms of achieving “the greatest competitive and profit-
making advantage.” This is far removed from and stands
in stark contrast to the type of mutually advantageous
partnership relationship built upon mutual trust, open-
ness, and sharing described by Lamming (1993) and by
Womack and Jones (1996).
Within the context of a larger study that examined link-
ages between different aspects of organizational health
(McHugh 1996), this article aims to explore the delete-
rious effect that complete dependence upon a powerful
buyer may have upon organizational health. It is con-
cerned with the case of a financially healthy organiza-
tion engaged in a trading partnership with a powerful
buyer regarded as being one of the most successful retailers
in the United Kingdom. Using a case study approach
that involves the collection of primary and secondary
quantitative and qualitative data, it seeks to show that
where a buyer is all-powerful, it is exceptionally difficult
to fully implement and reap the benefits of a true win-
win contractual obligational relationship of the variety
advocated by so many as being important in the achieve-
ment of competitive advantage. Equally, it indicates
that a relationship with a powerful buyer founded on
superficial trust provides temptation for the abuse of
the relationship that is injurious to the health and the
longer-term well-being of the buyer and supplier orga-
nizations. Thus, although powerful buyers may be tempted
to use their position to extract superior outcomes for
themselves, this may lead to a situation of ultimate
destruction.
The Buyer-Supplier Partnership
Before proceeding to investigate the organizational
health of the companies described in the subsequent
exploratory case study, it is important to provide a ratio-
nalization of the extent to which a partnership relation-
ship exists between the buyer and supplier organizations.
McIvor et al. (1997) identified a number of key factors
that influence buyer-supplier relations where partner-
ship sourcing exists. These are outlined in Table I with
supporting evidence relating to the relationship with
the powerful buyer, referred to as Company X. This table
also outlines linkages between buyer-supplier collabora-
tion and elements of organizational health.
The Journal of Supply Chain Management | Spring 2003 17
Buyer-Supplier Relationships and Organizational Health

Table I
PARTNERSHIP CRITERIA WITH CHARACTERISTICS FROM THE CASE
ORGANIZATION AND ORGANIZATIONAL HEALTH
Partnership Criteria
Rationalization and consolidation of the
supplier base (Ellram 1991). Improved
and deepened supplier relationships
(Gadde and Hakannson, 1994).
Supplier involvement in design and
product development (Sako et al. 1994;
Bonaccorsi and Lipparini 1994).
Bi-directional communications between
buyer and supplier focusing on key
aspects of partnership (Ellram 1991;
Spekman 1988; Williamson and Ouchi
1981; Richeson et al. 1995).
Focus on supplier development
(Leenders 1989).
Strategic supplier management
(Ellram 1991).
Characteristics from the Supplier
Case Organization
Deep relationship with Company X
developed over a period of 10+ years.
Increased business with Company X.
High level of contact with Company X.
Extensive collaboration in product
design and development.
Extensive bi-directional communications;
telephone calls; faxes; e-mails; meetings.
Members of organization worked with
buyer in own and in Company X’s
organization. Structural change to
create alignment of organizational
structure with that of Company X.
Long-term management compatibility.
Relation to Characteristics of
Organizational Health
Trust and cooperation between
individuals and organizations (De Vries
and Miller 1984; Cooper and Williams
1994).
Frequent meetings and consultations
(Newell 1995; Miller and Dess 1996).
Extensive inter- and intra-organizational
communication across the hierarchy
focusing on the development of rela-
tionships, functions, and processes to
enhance efficiency and effectiveness
(Senge 1991; Pettigrew and Whipp
1991; Heriott and Pemberton 1995).
Joint decisionmaking in relation to
employee development and structural
change (Miller and Monge 1986;
McHugh 2001).
Effective leadership and compatible
organizational cultures (Huey 1995;
Johnson 1995; McHugh et al. 1999).

Taking into consideration the factors that influence
buyer-supplier relations as outlined by McIvor et al.
(1997), the above discussion aims to illustrate that the
relationship that existed between the supplier organiza-
tion and Company X was a partnership. Further support
for this argument is offered by Boyle (1994), who pro-
vided detailed case study evidence outlining the extent
of the partnering relationship between Company X and
the supplier.
strategic business units (SBUs). Unlike positivist research,
however, the analysis of case study data is essentially
interpretative and inductive. From the qualitative data,
narratives or stories are developed that are examined for
patterns. From these patterns, inferences are drawn that
yield propositions and can lead to specific hypotheses.
Such hypotheses can then be tested in other situations
and indeed, if sufficiently specific, can be tested via the
more traditional survey methods of social science.

CASE STUDY METHODOLOGY A MEASURE OF ORGANIZATIONAL HEALTH

Management research is characterized as being soft,
applied, and divergent and is undertaken in complex
organizations that exist in a dynamic environment
(Tranfield and Starkey 1997). This makes it very difficult
to apply the more traditional positivist approach with
its emphasis on replication to test for validity. As a con-
sequence, a great deal of research in the management
of organizations makes use of the inductive case study
approach (Yin 1984; Bourgois and Eisenhardt 1988).
The single case study approach as used in the present
exploratory study provides great richness and multiple
perspectives of the many managers involved with regard
to the data collected and is thus largely qualitative in
nature. Although a single case in the sense that it exam-
ines in detail the relationship of a supplier organization
and its buyer, multiple methods were used to collect
data from individuals within two semi-autonomous
Within the larger study that examined links between
different aspects of organizational health referred to pre-
viously, financial indicators were used as the only tangible,
objective measure of organizational health. It is acknowl-
edged that the use of financial indicators may provide
an inadequate picture of organizational health. However,
in the absence of any other tangible objective measures,
they were used as a basis upon which to judge organiza-
tional health and select organizations for participation
in the research. The financial ratios used to assess sup-
plier performance over a four-year period included: return
on capital employed; sales per employee; gross profit
margin; sales per pound of assets; return on sales; the
acid test ratio; speed of stock turnover; debtors’ collec-
tion period; creditors’ payment period; and return on
shareholders’ funds. Taken together, they were consid-
ered to provide a relatively comprehensive picture of the

18 The Journal of Supply Chain Management | Spring 2003

 Buyer-Supplier Relationships and Organizational Health

Table II
FINANCIAL DATA FOR A FINANCIALLY HEALTHY SUPPLIER ORGANIZATION, YEARS 1-4
Year 1 Year 2 Year 3 Year 4
Return on Capital Employed 25% 18.25% 14.13% 12.43%
Return on Sales 6.13% 5.13% 4.38% 3.94%
Sales per Employee 31,881 31,107 32,581 37,036
Gross Profit Margin 21.25% 22.5% 15.25% 17.25%
Sales per Pound* of Assets 3.06 2.21 2.76 2.7
Current Ratio 1.97 1.15 1.98 2.07
Acid Test Ratio 0.81 1.82 0.57 1.02
Speed of Stock Turnover 6.9 6.73 6.98 8.83
Debtors’ Collection Period 42.25 48.87 25.37 35.4
Creditors’ Payment Period 92.87 156.25 70.5 76.75
Return on Shareholders’ Funds 22.5% 19.25% 17.62% 16.5%

*This study, conducted in the United Kingdom, employs the British pound (£).

organization’s financial health (Chakravarthy 1986; Woo with a desire to respond more efficiently and effectively to
and Willard 1983). The financial records of the supplier the buyer’s demands, a decision was made to restructure
company revealed that it had enjoyed high levels of suc- and divide it into three divisions, each of which would be
cess for a number of years; these are summarized in Table relatively autonomous reporting to company headquar-
II. To preserve anonymity, the data have been subjected ters. Company X had a very close relationship with the
to an inflator. Although subject to a degree of competi- organization. This relationship was fostered by daily con-
tive pressure, the company had performed better than tact with Company X involving people at all levels and all
many industry rivals (ICC 1998). divisions of the supplier organization. This contact aimed
to ensure that the supplier organization responded in a
ORGANIZATIONAL PROFILES positive fashion to the demands of Company X. These
The supplier organization is a large clothing manufac- demands were becoming ever more ambitious and aimed
turer in Northern Ireland that employs in excess of 3,000 to simultaneously achieve higher standards, lower prices,
people. The company has three divisions, each of which shortening leadtimes, and reduced product cycles.
operates as a semi-autonomous strategic business unit
(SBU) manufacturing different clothing products for the DATA COLLECTION TOOLS
same customer, Company X. The latter is a highly suc- As part of the study that was concerned with the health
cessful large, U.K.-based multiple retailer that has a pres- and well-being of individuals and organizations, initially
ence in all large cities and towns in the region. Until the a stratified random sample of 87 individuals spanning
mid-1990s, it performed at a consistently high level, the organizational hierarchy was selected and asked to
returning large profits on an annual basis. The policy complete the Cultural Audit and the General Well Being
of the company has been to establish a partnership Questionnaire (GWBQ) (Fletcher and Jones 1993; Cox
relationship with its suppliers, seeking to build deep-
ening relationships over a prolonged period of time.
This is evident in its trading relationships with suppliers Table III
across a wide spectrum of products.
SUMMARY PROFILES OF THE
Within the supplier organization, the majority of PARTICIPATING ORGANIZATIONS
employees are female operatives engaged in routine
Unit within SBU I Unit within SBU II
production work. Within the organization’s overall divi-
sional structure, each of the SBUs had a different man- No. of Employees 221 235
agement team that worked independently. Furthermore, Product Leisurewear Outerwear
each was engaged in the manufacture of different prod- Customer Group One Large Multiple* One Large Multiple*
ucts and operated a different system of production. Within Structure Divisionalized (SBU) Divisionalized (SBU)
the study, data were collected from units within two of
Significant Recent Structural Change Structural Change
the SBUs, the characteristics of which are summarized
Development
in Table III.
System of Production Modular (Team Assembly Line
Prior to 1992, the company was structured on a func-
Based)
tional basis. However, at this time, due to gradual expan-
Financial Health Healthy Healthy
sion and growth experienced by the company, coupled
*Referred to in this article as Company X.

The Journal of Supply Chain Management | Spring 2003 19

Buyer-Supplier Relationships and Organizational Health
et al. 1987). These are two psychometric instruments
that, among other things, provide measures of individual
stress and psychological well-being through four sub-
scales: “depression,” “anxiety,” “worn out,” and
“uptight and tense.” High scores on each of these
instruments are indicative of high levels of stress and
low levels of psychological well-being.
The findings revealed that a large proportion (40 per-
cent) of participants achieved scores on the “depression”
and “anxiety” subscales that were indicative of psycho-
logical distress. Scores for these individuals on the “worn
out” subscale were higher than norms for factory workers.
A detailed exposition of the results relating to this aspect
of the study is not considered to be within the scope of
the present article.
Following scoring of the instruments and analysis of
the data, a series of semi-structured interviews were held
with a sample of 19 individuals from the two SBUs. This
sample was drawn from the pool of 87 that had com-
pleted the psychometric instruments.
For the interviews, six production workers were selected
from each of the SBUs; two of these were considered to
have obtained low, medium, and high scores on the
measures of stress and psychological well-being. The
interview sample also included representatives of other
occupational groups within the SBUs, including supervi-
sors, “quality rovers,” management, and office staff who
had scored highest on the scales within their employee
group. Those selected were invited to participate in a semi-
structured interview with one of the researchers. They
were told that the interviews were being held as a follow-
up to the psychometric instruments and that they would
aim to obtain individuals’ views and opinions regarding
various aspects of work life within the organization. The
interview sample is summarized in Table IV.
These interviews were semi-structured and followed
the same format on each occasion. They aimed to focus
interviewees’ thoughts upon issues considered to be rel-
evant to the buyer-supplier relationship and the concepts
of organizational health. In particular, they covered five
areas aiming to ascertain the views and perceptions of
individual employees on the health of the organization,
focusing on features of the partnership relationship that
Table IV
THE INTERVIEW SAMPLE
SBU 1 SBU2
Production 6 6
Supervisors 2 2
Quality Rovers 1 -
Managerial Staff 1 1
Office Staff - 1
Other 1 -
Total 9 10
20 The Journal of Supply Chain Management | Spring 2003
existed between the organization and Company X as
outlined previously in Table I. The nature and character-
istics of the buyer-supplier relationship were central to
the analysis of the data at this stage in the study.
In addition to the 19 interviews held with those who
had completed the psychometric instruments, one inter-
view was held with a member of the senior management
team within each of the two SBUs. These interviews
focused upon management’s perceptions regarding com-
pany goals and performance, and the approach adopted
within the organization in relation to strategic decision-
making. Once again, although none of the interview
questions focused directly on the trading relationship
with Company X, on each occasion reference was made
to the buyer at an early stage in the interview and exerted
a dominating influence thereafter.
RESULTS
The interview data was entirely qualitative and the ini-
tial stage of analysis necessitated the identification of
themes emerging from the views expressed by partici-
pants. These themes form the basis of the subsections
outlined below. Analysis and interpretation of the inter-
view data suggests that each of the participating units
was unhealthy. This state of ill health appeared to be
influenced by a number of factors that stemmed from
its relationship with its very powerful buyer, Company
X. Within each unit, there appeared to be an obsession
with meeting the ever-increasing demands and unre-
lenting pressure exerted by Company X. This is illus-
trated in the analysis of results presented below.
Current Organizational Success
During the course of the interviews, the current suc-
cess of the organization was frequently attributed solely
to its link with its core customer. The importance of
Company X to the company, and the fact that having X
as a key customer is a cornerstone of the company’s suc-
cess, was highlighted throughout the interviews. While
many interviewees mentioned the close association with
a major customer as being a factor contributing to the
company’s success, two operatives pointed out that the
company was “very much tied to this customer.”
Pressures Exerted by a Powerful Buyer
In their opinion, it was of paramount importance that
the company managed to satisfy its key customer, but
they noted that the demands and targets being placed
upon the company were becoming excessively high and
exceptionally difficult to achieve. These demands cre-
ated pressures for everyone, but particularly production
workers who are critical to the organization’s existence,
a view which was supported by the scores achieved by
these individuals on the measures of stress and psycho-
logical well-being referred to previously. Many individuals
achieved scores on these measures that were indicative
of psychological distress.

It was often suggested that manufacturing for Company
X is a status symbol within the industry, and that other
industry players perceive the company as a force to be
reckoned with. However, during the interviews it became
very clear that the company as a whole was subject to
the effects of power emanating from its key customer, a
power that seemed to infiltrate the company and affected
the activities of everyone who worked within it. This is
illustrated in the comments of a supervisor:
“…our success hinges on the fact that everything
is done right and is done to please Company X.
X is very hard to please; if the company did not
have Company X, it would be lost.”
Such views were further reinforced by a number of
interviewees, with one production worker commenting:
“X is a major influence on everything that goes
on in the factory. Everything that happens here
is geared to meet Company X’s standards and is
dependent upon Company X.”
In an effort to cope with the intense competition and
the threat posed by the customer being lured by seem-
ingly more advantageous trading arrangements with
alternative suppliers, it was evident that the organiza-
tion had focused its attentions on achieving efficiency
gains where possible. This was highlighted in particular
by the comments of senior managers interviewed. As a
consequence of the constant drive toward the achieve-
ment of enhanced efficiencies, it was the opinion of
these managers that employees on the shopfloor were
subject to ever more ambitious production targets and
ever-increasing workloads. They suggested that these
workloads were reaching unreasonable proportions and
were a source of enormous pressure for individuals. As
such, it would seem fair to argue that such dependence
on one buyer that fosters customer domination is likely
to be unhealthy for an organization. This atmosphere
creates a high-dependency relationship and shields the
supplier organization from any direct impact of change
in the environment.
Powerless Managers
The quality of top management and the leadership
provided within the organization was heavily criticized,
indicating an unhealthy management style which it
may be argued was fostered by the relationship with its
powerful customer. Furthermore, it may be argued that
this unhealthy management style adversely affected the
well-being of employees; this is reflected in the levels of
stress exhibited by individuals and the views and opin-
ions expressed during interviews. Management at the
level of the division was generally held in high esteem.
However, the top management team within the com-
pany was considered by divisional managers interviewed
to be an impediment to enhanced organizational perfor-
mance; for example, one individual commented:
Buyer-Supplier Relationships and Organizational Health
“There are people at senior levels who, I think,
have a detrimental effect upon the company. You
get the impression that no one knows where we
are going; if they do, they haven’t told us. There
are two people at senior levels I respect; the others
I am not so sure about, they don’t listen.”
These interviewees frequently cited the confused vision
of the chairman and the rather insular views of the senior
management team as being problematic. Thus, the vision
held by the top management team seemed full of lifeless
platitudes and devoid of personality (Miller and Dess
1996); it did not appear to have a solid, well-founded
point of view about what would make the business suc-
cessful in the future (Hamel and Prahalad 1994). The
authors contend that such leadership behavior is sym-
bolic of poor organizational health and stifles necessary
creativity for organizational success in intensely com-
petitive environments (Senge 1990; Huey 1994; Hamel
and Prahalad 1994).
The Stifling Influence of a Powerful Buyer
This again may be partly attributed to the relationship
with a powerful buyer that stifled the individuality of the
company and its leadership. It was shielded from changes
impacting its external environment, being cocooned
and lulled into a false sense of security. Simultaneously,
it was being squeezed to an extent beyond that which
fosters maximum performance and health. Thus, although
it may be argued that the existing state of ill health
within the organization stemmed from its relationship
with its very powerful buyer, this in turn may be influ-
enced by the apparently weak leadership within the
company. It was this leadership that led the organiza-
tion into such a relationship in the first place. It may be
argued that, once committed to this customer, the role
and function of leadership within the organization was
overwhelmed by the power and influence exerted by
the customer. Such features of a trading partnership are
decidedly unhealthy and, it is argued, work to the detri-
ment of the buyer and the supplier. This view is further
supported by recent financial performance data for
Company X and the case organization. Both organiza-
tions have reported major falls in turnover and profits
over the last two years. Additionally, share prices for
Company X have shown a significant decline and both
organizations have introduced large-scale layoffs as part
of a restructuring program.
The behavior of the organization and its leadership is
indicative of low self-esteem, whereby both were seem-
ingly trapped in a trading relationship where they were
powerless to act and appeared to have little control over
their own destiny. The organization was more or less
acting as a puppet whose strings were very tightly con-
trolled by a possessive buyer.
The Journal of Supply Chain Management | Spring 2003 21
Buyer-Supplier Relationships and Organizational Health
Powerless Operatives
During the course of the interviews, it was evident that
lack of participation in decisionmaking was a source of
frustration for those in operative positions. These indi-
viduals often found themselves implementing decisions
that they knew were flawed and costly for the organiza-
tion. This lack of participation appeared to be fostered
by the often chaotic state that existed within the orga-
nization as a result of having to respond very rapidly to
sudden buyer demands. As a consequence, the sense of
urgency that prevailed within the units did not permit
the necessary time to involve key individuals in the
decisionmaking process. These individuals often suggested
that management should have consulted with them due
to their in-depth technical knowledge. Operatives felt
that they could make valuable, worthwhile contributions
and hence, often enhance the quality of decisions. Healthy
organizations foster employee involvement in routine
decisionmaking, which is believed to contribute indirectly
to enhanced organizational performance (Newell 1995;
Miller and Monge 1986). Similarly, the lack of employee
participation in routine decisionmaking was yet another
symptom of organizational ill health fostered by the link
with a demanding buyer.
While lack of consultation was evident in the deci-
sionmaking practices within the organization, it also
extended to significant events affecting the company
and its employees. Such events included, for example,
the divisionalization of the organizational structure. The
influence of Company X extended to the organization’s
decision to adopt a divisionalized structure, with one
interviewee saying:
“…it was better from Company X’s point of view.
X is divisionalized internally in the sense that each
department supplied in X acts as a division, so it
was easier for them to relate to and work with
divisions here.”
The lack of consultation concerning structural change
left many individuals unsure of how they would be
affected by the events, and somewhat annoyed that
their opinions were not sought regarding decisions that
would change their roles and responsibilities within the
organization. This is reflected in the comments of one
individual who said:
“There was a lot of unhappiness in the company
about the way things were done. A lot was
expected in a very short time; there was little
preparation or support.”
The poor quality of communication symbolized by this
behavior is another feature of organizational ill health.
As noted previously, the decision to divisionalize was
made partly so that the company could respond more
efficiently and effectively to its customer. Divisional-
ization represents a major change for any organization
that requires careful management to ensure a successful
transition to the new state. However, in this case the
22 The Journal of Supply Chain Management | Spring 2003
structural change was effected within a very short time-
frame with apparently little or no consultation with key
individuals or groups.
Strategic Decisionmaking
Poor communication also seemed to characterize the
strategic decisionmaking practices within the organiza-
tion, which weakened the strategy and its implementa-
tion. The units participating in the study indicated their
lack of awareness of the company’s strategy and plan for
the future; this was particularly evident in the comments
made by the senior manager within one of the units
who stated that:
“…in terms of how we operate, you try and get bits
of information and piece it together like a jigsaw
and form a strategy for the factory from this.”
As a consequence, these individuals were placed in a
position whereby they formulated a workable plan for
their own operating unit. Lack of communication
regarding something so fundamental to the organiza-
tion as its strategy is evidence of management and orga-
nizational behavior likely to contribute to a state of ill
health for the organization and the individual.
DISCUSSION AND CONCLUSIONS
This exploratory case study reveals the effects that a
powerful buyer can have upon the behavior of a sub-
missive supplier organization. The characteristics of the
relationship that existed between the organizations in
this article may be considered strong barriers against
building effective relationships between buyers and sup-
pliers. In particular, the findings reveal a distinct lack of
internal collaborative or cultural alignment between
levels of the organizational hierarchy within the supplier
organization. Such alignment is cited as a necessary
ingredient in successful buyer-supplier collaboration
(Kanter 1989; Burnes and New 1997; Boddy et al. 1998).
Given the lack of internal collaborative or cultural align-
ment within the supplier organization, it will be even
more difficult, if not impossible, to create the necessary
cultural alignment between buyer and supplier. On the
basis of the evidence presented within this article, the
nature of the relationship that existed between the orga-
nizations may have negatively reinforced the formation
of cultural alignment.
The behaviors exhibited by this supplier organization
are indicative of a state of ill health and an organization
that is being severely squeezed by its powerful customer.
The supplier was originally selected to participate in the
study because of its previous financial performance.
However, it is posited that on some occasions an organi-
zation may accumulate wealth as a result of engaging in
“unhealthy” practices that are short-sighted and likely
to adversely affect longer-term well-being. Some support
for this view is provided by the financial data for the
supplier organization (see Table II). Based upon litera-
ture on buyer-supplier partnerships and organizational
health, this would seem to be a logical conclusion. It is

acknowledged, however, that this case study is essentially
exploratory and that further support for the argument is
likely to be provided by a longitudinal study that includes
operational issues such as quality levels, throughput rates,
yield rates, and work-in-progress.
The organization that formed the focus of this article
appears to be caught in a trap presented by its sole cus-
tomer where the power exerted by the latter would seem
to be a major contributor to organizational ill health.
This is reflected in the declining financial performance of
the buyer and supplier organizations, the restructuring
program, and reports of conflict in senior management
within Company X.
Although involved in a trading partnership, the cus-
tomer is powerful and in a position to withdraw from
the relationship should a more favorable supplier pre-
sent itself. This is counter to the cooperation and trust
of the partnership relationships referred to by Sako (1992).
While locked into serving this customer, the organiza-
tion’s total efforts are directed toward meeting the ever
more stringent demands of the customer. As a conse-
quence, the customer, in effect, prevents the organiza-
tion from scanning its external environment. This again
is decidedly unhealthy and would suggest that the com-
pany is unable to make decisions crucial to their own
best interests. Without the constraints imposed by such
a dominant customer, the company would have had the
freedom to choose its own direction and the means by
which it would pursue its own goals. This aside, how-
ever, given the comments regarding the quality of lead-
ership and the characteristics of the senior management
team within the organization, one must question if the
organization would have been well placed to identify
appropriate goals and implement optimal methods of
goal achievement.
The influence of Company X was omnipresent and all
developments, decisions, events, and activities that took
place within the organization were a response to the
endless stream of demands made by the buyer. The inter-
views revealed that these demands were reaching unrea-
sonable proportions and so it would seem that the level
of influence, power, and control exerted by the buyer
was in itself unhealthy, and was fostering a state of ill
health within its trading partner. Thus, the supplier was
trapped in the middle of the vicious spiral of negativity
referred to previously. While this has potentially disas-
trous consequences for the supplier organization, it is
equally likely to have a negative effect upon the buyer.
If the supplier organization is itself in a stressed situation,
its resultant behavior manifests itself in ill-conceived,
time-urgent decisionmaking, poor management practices,
and frustrated employees who are constantly under
pressure to meet overly ambitious targets. It follows that
such behavior is likely to have negative repercussions
for the buyer.
In the interests of fostering a state of organizational
health, the arguments put forward and findings presented
Buyer-Supplier Relationships and Organizational Health
highlight a need for buyer and supplier organizations to
carefully examine the nature and characteristics of the
partnership that exists between them. Given the well-
established principle that excessive pressure leads to
dwindling performance (Yerkes and Dodson 1908), it is
important that buyers and suppliers heed this advice.
Thus, there must be knowledge and understanding by
both buyer and supplier of the pressure performance
relationship, and the identification of the point of optimal
buyer pressure so as to achieve maximum performance.
As noted in the introductory section of this article,
although a powerful partner may be tempted to flex its
muscles by exerting excessive pressure on its suppliers,
it should be aware that such behavior may be costly to
itself in the longer term and may lead to unwanted con-
sequences. Not only is it likely to destroy a happy mar-
riage, but it could sow the seeds of its own self-destruction.
Building upon the pressure performance relationship
outlined by Yerkes and Dodson (1908) referred to above,
the link between excessive buyer pressure and buyer-
supplier performance is demonstrated in Figures 1 and 2.
The evidence presented within this article indicates
that the nature of the relationship that existed between
the buyer and supplier organizations is such that the
powerful buyer has in fact squeezed the submissive sup-
plier to such an extent that the effects are harmful to
both sides of the relationship. In terms of the diagrams
presented, the pressure exerted by the buyer on the sup-
plier has gone beyond the optimum point, leading to a
decline in performance.
The findings presented highlight a number of issues
that have implications for management practice in fos-
tering improved organizational health within buyer and
supplier organizations. More specifically, it would seem
that in order to reap the benefits of partnership, buyer
and supplier organizations must interact in a way that is
mutually respectful, and where the relationship exhibits
characteristics of true win-win partnerships; this supports
the underlying principles of partnership outlined by
Lamming (1993). To facilitate effective strategy imple-
mentation, it is imperative that the “right” relationship
is established between buyers and suppliers. This high-
lights a need for strategic and cultural alignment between
buyer and supplier and a rejection of behavior and prac-
tices that aim to selfishly satisfy individual components
of an organizational network as described by Cox (1996).
It would seem essential that communication structures
that promote dialogue, consultation, and employee par-
ticipation in decisionmaking be promoted. This is par-
ticularly important where decisionmaking could benefit
from the in-depth technical knowledge of middle and
junior managers and shopfloor workers. The findings
show that senior management within the company
have made a strategic decision to supply solely to
Company X. Strategic decisionmaking within the com-
pany appeared to be “inward-looking and closed,” influ-
enced only by the views and opinions of a small team
The Journal of Supply Chain Management | Spring 2003 23
Buyer-Supplier Relationships and Organizational Health

Figure 1
The findings presented suggest that in creating and
THE PRESSURE/PERFORMANCE RELATIONSHIP fostering a state of health, supplier organizations must
aim to move away from a position of domination by
a single customer, where they are under the spell of a
Optimum pressure point powerful buyer. If the latter is unavoidable, then it is
High
essential that the consequences of being caught in a
trap set by a powerful buyer are acknowledged, with the
organization’s leadership and management seeking to
develop contingency plans and strategies, and/or fos-
tering the creation of a more equitable and symbiotic
Performance partnership. Consequently, the supplier organization
will become a more active player that takes increased
control over its own destiny, rather than being a passive
recipient that seems powerless to change circumstances
that appear to shape its behavior, and ultimately its
performance.
Low
This article has presented some findings from what is
Low High essentially the first stage in a long-term research program
focusing on the nature and characteristics of buyer-supplier
Levels of Pressure
relationships and their relationship to organizational
health. In developing the work further, the propositions
presented are likely to be strengthened by future planned
Figure 2 work that will adopt a more quantitative approach,
employing a survey methodology to test the relationship
THE BUYER SQUEEZING/SUPPLIER RESPONSE RELATIONSHIP between buyer-supplier relationships and organizational
performance measures. While this provides an indication
of the direction of future research work, it is argued that
Optimum pressure point — the present article presents a new and hitherto unex-
High “ideal“ buyer-supplier relationship plored way of conceptualizing the buyer-supplier rela-
tionship and implications for organizational well-being.
Case organization
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The Journal of Supply Chain Management | Spring 2003 25
 International Federation of Purchasing and Materials Management
9th IFPMM Summer School on
Advanced Purchasing Research
August 6-11, 2003, Salzburg, Austria
The first IFPMM Summer School was
organized nine years ago. Seeing the
success of the first event, the Federation
decided to arrange annually this opportu-
nity for an intensive working together of
talented young scholars from all around the
world, with some of the leading professors of the field.
At the seven schools we have had 88 students from 21 coun-
tries in Europe, North America, Asia, and Africa. Three vol-
umes of the papers presented by students participating in
OBJECTIVE
The Summer School is intended to serve the following objectives:
• to help participants define relevant research topics and pow-
erful research methods;
• to provide a forum for talented young scholars from various
regions of the world to exchange ideas and establish a research
network;
• to promote the profession of purchasing and materials manage-
ment by contributing to the creation of high standards for dis-
sertations by the participants.
PARTICIPATION
Participants may come from any country provided that they meet
the following requirements. They must be:
• enrolled Ph.D., postgraduate (or advanced graduate) students of
an accredited institute of higher education;
• in the process of writing a dissertation based on original research
on purchasing or a closely related area (materials management,
logistics, supply chain management, etc.);
• fluent in English and willing to take an active part in discus-
sions in that language;
• able to present a letter of recommendation from one regular
faculty member of the institution they are enrolled in.
A strong preference will be given to those students who can pre-
sent a paper for discussion at the summer school. The paper must
be mailed to the School Secretariat not later than June 15, 2003.
Applications should be sent to the IFPMM Summer School
Secretariat and the national member associations of IFPMM in the
country where the applicant is enrolled in school. Applications from
those countries where such association does not exist can be sent to
the School Secretariat only.
Applications will be processed in the order of arrival to the School
Secretariat, and the first 20 applications meeting the above require-
ments and considering the said preference will be accepted.
Contact for information: Professor Attila Chikan • Past President of IFPMM • c/o HALPIM Secretariat • Veres Pátné u. 36.,
Budapest, Hungary, H-1053 • Phone and Fax: (36-1) 317-2959; 266-4673 • E-mail: chikana@axelero.hu, halpim@mercur.bke.hu
the first six schools have been published
by IFPMM under the titles:
– Emerging Issues in Purchasing and
Supply Chain Management (1997)
– Research Perspectives in Purchasing and
Supply Chain Management (1999)
– Purchasing and Supply Topics at the
Turn of the Millennium (2001)
All the seven schools were organised in Salzburg, which
has proven to be an ideal location for the event.
PROFESSIONAL PROGRAM
The professional program starting on August 7, 2003, will consist
of four elements:
1. Presentation and discussion of research subjects delivered by
invited speakers. These sessions will be directed by internationally
acknowledged scholars, who will present a topic on his/her own
research field and discuss with the students possible approaches
and methods to handle the subject. Invitations are in progress
and a full list of speakers will be released in May.
2. Presentation and discussion of research papers prepared by the
school participants. Papers submitted will be distributed among
participants and the discussions will be led by invited professors.
3. Practitioners’ presentations of hot issues in purchasing and related
management areas. These presentations shall be of orienting type
and will be given by invited speakers.
4. There will be some methodological discussions and group exer-
cises, in order to help the participants’ research and teaching
skills.
PARTICIPATION FEE
IFPMM is the main sponsor of the project, but contribution is
expected from other organizations as well. This assistance makes it
possible that the participants only have to pay a nominal fee: CHF
1000. This fee should be sent to the bank account of ISIR/HALPIM,
account number: 501-00219-2100-4029 Hungarian Foreign Trade
Bank Ltd., H-1821, Budapest, Váci u. 38., Hungary. The participa-
tion fee includes accommodation (in single rooms with shower),
three meals a day (starting with a dinner on Wednesday, August 6,
ending with lunch on Monday, August 11), refreshments and all
materials. Travel, extra nights and extra costs for a double room
must be arranged and paid for individually. Please note: the profes-
sional program starts in the morning of August 7.
In exceptional cases, applicants can apply for a reduced participa-
tion fee. This application should be sent both to the national member
association and the School Secretariat.