Journal of Business & Industrial Marketing

The evolution of buyer-supplier relationships: an historical industry approach

Jared M. Hansen

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The evolution of buyer-supplier relationships:

an historical industry approach
Jared M. Hansen

Downloaded by Heriot Watt University At 19:55 30 July 2016 (PT)

Department of Marketing, Belk College of Business, University of North Carolina at Charlotte, Charlotte, North Carolina, USA
Abstract
Purpose This paper aims to evaluate the evolution of buyer-supplier relationships from adversarial toward relational, or service-centered, emphasis
for large-scale organizations.
Design/methodology/approach This paper uses the historical method to review historical changes through synthesized qualitative (i.e. field notes
and industry interviews) and quantitative (i.e. company reports, Compustat queries, trade reports, and survey) research.
Findings Technology and information sharing in B2B relationships engender integrated value chains. Within these value chains, service-centered
view of B2C relationships have been adopted in B2B relationships, resulting in changes in supplier roles and how they are measured.
Research limitations/implications By focusing on large scale buyer-supplier relationships within supply chains (e.g. Wal-Mart, Royal Phillips,
ElecSound, China Minmetals, The Peoples Republic of China), which may affect the generalizability to small-business applications, this paper provides
some guidance on which customer levels (in a value chain) an organization should focus. The evolution of buyer-supplier relationships towards more
cooperative relationships results in changing roles such as co-managed inventory, where suppliers are authorized to write themselves orders.
Practical implications This paper is a very useful source of information for practitioners and educators about recent trends in large-scale buyersupplier relationships, including slotting allowances, co-managed inventory practices, and selling teams. It also provides a buyer-seller trust matrix that
can be used for teaching or developing relational strategy in organizations and classrooms.
Originality/value This paper provides description of changes in sales force roles and measures, including the roles of responsiveness,
empowerment, trust (both supplier and supplier representative), and information sharing not previously found in the literature. Survey research
establishes the external validity of the qualitative research.
Keywords Buyer-seller relationships, Change management, Value chain, Trust, Empowerment, Purchasing
Paper type Research paper

(2001) suggests that business marketers must continually

increase their contribution to the value chain because of
market changes. As a result, the lines between consumer and
business marketing are increasingly blurred (e.g. Coviello and
Brodie, 2001; Wind, 2006). For a more extensive review, see
LaPlaca and Johnston (2006). Given this progression in
business- and industrial-marketing thought, the subsequent
discussion on the evolution of buyer-supplier relational logic
toward a service-centered view in industry practice would be
the next important step in the literature and JB&IM would be
the best place.
According to Vargo and Lusch (2004), the marketing
discipline is converging on a service-centered view that is
relational in nature. For them, such a view implies that
marketing educators and scholars should be proactive in
leading industry toward a service-centered model of
exchange (Vargo and Lusch, 2004, p. 14). Extending this
implication through analogy involving the performing arts
provides a unique perspective: in order for one to lead in
dance, the partner must be concurrently stepping ahead of the
leader by peeling the feet backwards blindly down the line
of dance (i.e. history), allowing the leader (i.e. academe) to
step forward into the spot where the partner (i.e. industry)
once was; otherwise, there would be no progression. This
approach draws support from Websters (2006, p. xiv)
assertion that a service-centered logic derives strength from
the premise that there are many innovative ideas about
marketing that have their origins in business practice, not in
academe. Similarly, for Deighton and Narayandas (2004,
p. 20), the answer to whether a new service dominant
(hereafter, S-D) logic exists lies in the inductive development

An executive summary for managers and executive

readers can be found at the end of this issue.

Introduction
The call for research on the shift from adversarial,
transactional relationships towards cooperative, servicecentered relationships in purchasing orientation (Lindgreen
and Revesz, 2006) is an important and timely outgrowth of
the last three decades of business and industrial marketing
literature. In the inaugural issue of the Journal of Business &
Industrial Marketing (hereafter, JB&IM), Roberts (1986,
p. 69) states:
Most progressive companies today view their customers, vendors, and
suppliers as partners in the quality-price-service chain of events.

To adopt such a view usually requires, as stated by Kyj and

Kyj (1987, p. 47), that managers have a clear understanding
of the standards of service within their industries. Vargo and
Lusch (2004, p. 1) note that these standards have been
changing over the last two decades, resulting in the surfacing
of relationship marketing and supply and value chain
management. Indeed, more recent research by Sharma et al.
The current issue and full text archive of this journal is available at
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Journal of Business & Industrial Marketing

24/3/4 (2009) 227236
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227

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The evolution of buyer-supplier relationships

Journal of Business & Industrial Marketing

Jared M. Hansen

Volume 24 Number 3/4 2009 227 236

of theory from phenomena closely observed and thickly

described. Drawing upon these assertions, this paper argues
that what is needed in the literature is not evidence of the
emerging relational logic in the literature being adopted in
business and industrial buyer-supplier relationships, but
rather evidence of critical historical events in industry being
accounted for in the emerging logic. Such an approach would
provide insight into the reciprocity between the evolution in
the dominant marketing logic and the evolution in buyersupplier relationships.
Toward this goal, this manuscript focuses on one industrybased history of the emerging service-centered view not
heretofore experienced: how the dance between
manufacturers and Wal-Mart, as it has risen to the apogee
of retailing, has influenced several levels of B2C and B2B
buyer-supplier relationships within supply chains. Specifically,
three historical industry events provide great insights into the
questioning of Day (2004) and Rust (2004) on the why
now and so what boundaries of a S-D logic for business
and industrial buyer-supplier relationships:
.
the dynamic shift in retailer sales concentration over the
last few decades, resulting in a precipitous decline of
manufacturing power in buyer-supplier relationships with
retailers;
.
the adoption of Wal-Mart philosophy across business and
industrial marketing relationships, providing an initial
comparative advantage to Wal-Mart; and
.
the adaptation of Wal-Marts philosophy by
manufacturers such as Royal Philips in part to stalemate
the retailer(s) more recent attempts to increase
comparative advantage through product packaging
changes, global procurement, and private label
merchandising.

Wal-Mart and interviews with Wal-Mart and manufacturing

executives; see Yin, 2003) and quantitative (i.e. company
reports, Compustat queries, trade reports, and survey)
research. The historical method provides critical evaluation
of the time, place, and contexts in which phenomenon occur
(Nevett, 1991), including buyer-seller relationships (see
Schurr, 2007). As noted by Low and Fullerton (1994,
p. 174), the critical evaluation of historical accounts need not
be negative in outcome. Following Eisenhardt (1989), the
emergent concepts are tied to existing literature in each
section. Both Compustat data analysis and an industry survey
are reported to provide initial external validity.

Shifting buyer-supplier power

S-D logic maintains that events are historically-situated and
path-dependent (Hunt, 2004; Hunt and Madhavaram, 2006;
Vargo and Lusch, 2004). This paper asserts that the increase
in retail sales concentration over the last half century is a
historically-situated, path-dependent event of significant
impact on buyer-supplier relationships. The ratio between
the largest annual retailer sales in 2005 (i.e. Wal-Mart) and in
1960 (i.e. The Great Atlantic & Pacific Tea Company) from
the Compustat database is 59.9, or 9.4 after inflation
adjustments (Sahr, 2004) (see Table I). Further, the annual
sales ratio between the largest retailers is comparable from the
1960s through the early 1990s, at which point Wal-Mart sales
growth began accelerating faster than its retail competitors.
Adopting a more holistic, international lens, Wal-Marts retail
sales are also larger than the next four largest retailers in the
world combined (i.e. Carrefour SA, Home Depot, Metro AG,
and Royal Ahold NV). As a result, the relative negotiation
strength of Wal-Mart should also have increased in its buyersupplier relationships.
Executives from multinational manufacturers across several
industries and countries indicate (in interviews with the
author) that Wal-Mart often represents 30 to 50 percent of
the manufacturers unit sales. Thus, Wal-Mart could exert a
strong buyer-supplier relational influence across many
industries, potentially extracting large concessions from its
estimated 61,000 manufacturer suppliers worldwide
(Ailawadi, 2001; Anderson, 2003, Enright, 2006; Farris and
Ailawadi, 1992; Fishman, 2006; Useem, 2003). Still,
according to Bloom and Perry (2001, p. 379), the
academic literature, however, has yet to provide conclusive
evidence that such a shift has occurred, citing challenges
based on a lack of visible increases in slotting allowances,
advertisement funding, and related concessions (i.e. Kim and
Staelin, 1998; Lariviere and Padmanabhan, 1997; Sullivan,
1997). Reviewing the literature, Ailawadi (2001, p. 311)
states that it is still not clear whether slotting allowances are
competitive or antitcompetitive. The author agrees that such
a shift should be accompanied with evidence.
However, while the lack of visible increases in various trade
allowances may have previously been indicative of a stronger
manufacturing influence (i.e. when traditional grocers
dominated retailing), it may currently be indicative of an
actually stronger retailing influence. The reason why? Because
the more recent shift in retail sales leadership (i.e. to WalMart) has been accompanied by a Wal-Mart philosophy that
emphasizes the elimination of these transaction costs. That
is, Wal-Mart currently attempts to eliminate all slotting
allowances and other supplier-based fundings and, instead,

The result a potential divergence in applying a S-D logic

across business and industrial buyer-supplier relationships.
The remainder of this manuscript proceeds as follows: first,
an investigation of the dynamic power shift between
manufacturers and retailers, introducing both reasons why
scholarly research has not been able to verify the shift, and
alternative measures that may provide more insight into it.
Second, an overview of the diffusion and evolution of WalMart philosophy through business and industrial markets,
beginning with the transition from information sharing
toward integrative value chains. Third, comments on several
similarities between Wal-Mart philosophy and S-D logic,
introducing potential foundational premises surrounding
empowerment, trust, and speed for the S-D logic as it
relates to business and industrial buyer-seller relationships.
Fourth, a discussion of how the emerging divergence between
retailer and manufacturer strategies in applying the Wal-Mart
service-centered philosophy may affect S-D logic. Finally, an
introduction of broader organizational consequences for
practitioners and researchers.

Method
Consistent with Chandler (1962), who proposes that
historical events can reflect greatly on theory, this article
contributes to the open source development of S-D logic for
buyer-supplier relationships through an appraisal of changes
witnessed through synthesized qualitative (i.e. field notes
taken during four years of corporate buying employment at
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The evolution of buyer-supplier relationships

Journal of Business & Industrial Marketing

Jared M. Hansen

Volume 24 Number 3/4 2009 227 236

Table I The shift in retail sales leadership

Leader year
1960
1972
1973
1982
1983
1989
1990
1995
2000
2005

Great Atlantic and Pacific Tea Co

(1960-1972)

Safeway
(1973-1982)

Sears
(1983-1989)

Wal-Mart
(1990-2005)

Ratio of largest
two retailers

5.2
6.4
6.7
4.6
5.2
11.1
11.4

2.5
6.1
6.8
17.6
18.6
14.3
14.9
16.4
32.0
38.4

NA
3.9
4.7
16.9
18.8
29.7
32.3
34.7
37.0
36.0

0.08
0.13
3.4
4.7
25.8
32.6
93.6
192.0
312.4

2.1
1.1
1.0
1.0
1.0
1.2
1.0
2.7
5.2
8.1

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Note: Sales figures are in billion dollars

Sources: Company annual reports and Standard & Poors Compustatw data (Accessed February 2006 from WRDS @ Wharton); Identification of largest retailers
included analysis of all companies listed in DNUM codes 5331, 5411, 5399, 5912

have these costs netted out of the initial cost of goods charged
to the retailer (Walton and Huey, 1992). Indeed, the results of
a field survey conducted by the author provides initial,
exploratory evidence that, at least according to two dozen
executives or senior managers of large-scale manufacturing
organizations, there has been a shift in negation power
accompanied by a change in seller-buyer activities
interpretation. Indeed, not only do these executives report
that they have to give less slotting, advertising, fixture, and
other trade allowances than 20 years ago on average, but they
also indicate that they now have to spend more time managing
databases for retailers, give more price concessions, take back
more merchandise overstock from retailers, and decrease
product size or quantity to remain profitable. Thus, the
metrics and their interpretation will depend, in part, on the
dominant retailers strategies (see Table II).
Why would Wal-Mart philosophy emphasis an initial cost of
goods approach? The answer is that lower initial costs are

passed on in the value chain in the form of lower retail prices

charged to consumers. The lower retail prices result in higher
sales volume as both more customers buy and customers buy
more. The higher sales unit volume results in increased
inventory rotation. The increased inventory rotation requires
less retailer capital while maintaining an equal or improved
initial profit margin compared to traditional grocery stores.
This change in buyer-supplier negotiation emphasis from post
purchase transactions (e.g. slotting fees) to initial cost of
goods provides support for the approach that competition
may have a more efficient or effective impact than regulation
in addressing the continuing debate over slotting allowances
(see Balto, 2002).

Service-centered philosophy diffusion across

industries
From information sharing to integrated value chains
A number of scholars have proposed that advances in
technology and increases in information sharing have resulted
in the convergence of research streams leading to the
emerging service-centered, relational logic (e.g. Day, 2004,
p. 18; Rust and Thompson, 2006, p. 382). According to
Johnson (2002), Wal-Mart was among the first retailers to
use computers to track inventory (1969), just as it was one of
the first to adopt bar codes (1980), EDI for better
coordination with suppliers (1985), and wireless scanning
guns (late 1980s). However, the author asserts that it is
because Wal-Mart manages the merchandise process by
sharing point of sale (POS) demand, inventory levels, supply
chain costs, promotion plans, and strategic goals with its
suppliers through its proprietary Retail Link database system
that integrated value chains are created (see Flint and
Mentzer, 2006; Mentzer et al., 2000). In turn, the integrated
value chains result in an interorganizational competitive
advantage for both the retailer and the manufacturers (Dyer
and Singh, 1998). But why Wal-Mart? It is, in part, because
Wal-Mart began with stores located in towns with less than
50,000 people that it had to develop a channel based on
efficiency to serve its customers (Walton and Huey, 1992).
Wal-Mart accomplished this by synthesizing best practices in

Table II Manufacturer executives survey of shifting buyer-seller

purchasing power
Compared to 20 years ago, how much has each
of the following changed (in relationships with
retailers) for your company?
Mean
1. . . .having to provide slotting allowances
2. . . .having to provide advertising funds
3. . . .having to provide fixture funds
4. . . .having to provide other trade funds
5. . . .having to take back merchandise
6. . . .having to manage retailer sales data
7. . . .having to give price concessions
8. . . .having to shrink product size or portions to
remain profitable
9. . . .having to decrease product quality to
remain profitable

Std error

2.5
2.7
2.5
2.8
3.3
4.3
4.2

1.0
1.4
0.8
1.3
0.8
1.0
0.8

3.4

1.5

2.8

1.0

Notes: Respondents were prompted to respond to the questions on a fivepoint scale, where 1 equals Much less than 20 years ago and 5 equals
Much more than 20 years ago. Thus, answers below 3 reflect a decrease
in the activity, and answers above a 3 reflect an increase in the activity

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The evolution of buyer-supplier relationships

Journal of Business & Industrial Marketing

Jared M. Hansen

Volume 24 Number 3/4 2009 227 236

logistics systems from military, government, shipping, and

other fields and sharing information with its suppliers.
Consistent with the Wal-Mart philosophy of sharing
information, all suppliers are granted free access to all of
the Retail Link database reports, all suppliers are mentored by
Wal-Mart replenishment managers, and all suppliers are
required by Wal-Mart to use the Retail Link system to comanage their joint business with the retailer. Resultantly, the
suppliers forecasts are based on the Retail Link database
reports of prior sales to consumers at the registers, and
(supporting the Wal-Mart philosophy) suppliers sell to the
consumer, not to the retailer. These practices can reduce
intra-channel conflict (Lusch, 1976), leading to a more
integrated value chain. Wal-Mart even encourages larger,
more experienced suppliers to work with newer suppliers at
times competitors to improve utilization of the Retail Link
system. Additionally, Wal-Mart has begun using standardized
online quick reports called Store Within a Store (SWAS)
reports nested within the Retail Link system that update daily
on suppliers and buyers computer screens (Troy, 2005).
Buyers can email the quick reports to suppliers with
comments or questions, accelerating the collaborative
responsiveness to business needs. More recently used by
Wal-Mart, the Collaborate, Planning, Forecasting, and
Replenishment (CPFR) system allows suppliers to review
and make comments on sales forecasts for their items
(Fliedner, 2003; Sherman, 1998). Collaboration occurs
constantly as suppliers propose changes in the system and
Wal-Mart replenishment managers or buyers respond with
approvals or reasons why changes should not be made. Thus,
merchandise forecasts become co-produced, integrating
knowledge from both the buyer and the supplier.
Even more contrary to a product-centered philosophy
containing adversarial relationships, several manufacturers
have indicated that Wal-Mart has placed them on a comanaged inventory system where the manufacturers write
themselves purchase orders without any Wal-Mart signatures
or approvals (Barratt and Oliveira, 2001). An invitation to
participate indicates complete trust in the relationship, as
there are no order restraints beyond occasional buyer
observation. To date, only a few hundred have been invited
to participate similar in count and relationship to the
keiretsu of Toyota (Dyer, 1996). However, more are being
added with time as the complexity and size of the business
grows and suppliers demonstrate co-commitment to the
business.

rights to the land from which companies such as China

Minmetals extract antimony. The antimony is sold to
manufacturers such as ElecSound Electronics that use it to
build OEM parts (e.g. semiconductors, capacitors) for
electronic manufacturers, including Royal Philips
Electronics. Royal Philips Electronics, in turn,
manufacturers consumer electronic devices (e.g. televisions,
remote controls) that it sells to Wal-Mart. Wal-Mart
distributes these electronic devices from its distribution
centers to its stores for sale to its customers consumers.
Adopting a service-centered view of buyer-supplier
relationships, which customer level(s) should, for example,
ElecSound Electronics attempt to collaborate with? To coproduce with? To co-create with? The historical success of
organizations such as Intel indicates that it is possible for an
organization to attempt to market to their customers
customers. Obviously, however, such promotion is, of course,
not equivalent to buyer-seller collaboration. The author
proposes that while attempting to work with the customers
customers (i.e. the consumer for Royal Philips Electronics or
Wal-Mart for ElecSound Electronics) can provide a
competitive advantage to an organization, any further
demarcation beyond that level would often result in
diminishing returns.
For longer and more complex chains such as the coffee or
automotive industries, the identification of which customer
level(s) to focus on in an integrated value chain becomes even
more critical to implementing a service-centered philosophy.
For example, the automotive industry action group (AIAG) is
an open forum for selected auto brand manufacturers, OEMs,
suppliers, and others involved in the supply chain to
cooperate in developing and promoting solutions that
enhance the prosperity of the automotive industry (AIAG,
2006). The critical question remains, of the 1500 companies
participating in AIAG, how many tier 1, tier 2, or other
supplier or customer levels should an organization attempt to
establish a service-centered relationship with?
Changing roles of sellers sales force
According to Ulaga and Chacour (2001, p. 525), knowing
where value resides from the standpoint of the customer has
become critical for suppliers. For the 61,000 worldwide
manufacturers selling to Wal-Mart and the much larger group
hoping to sell to it or to other retailers, competitive pricing
and innovation are still necessary, but no longer sufficient.
Using the combination of its buyer-supplier relational power
and its shared integrated information tracking system, WalMart buyers expect the suppliers sales representatives to
jointly manage the retailers consumer business. The
evaluation of the evolving supplier sales force role from a
buyers perspective in a service-centered logic is divisible
between three objective measures (i.e. volume, profitability,
and inventory) and four subjective measures (i.e.
responsiveness, decision maker empowerment, trust, and
information sharing)[1]. The remainder of this section will
discuss each measure.

Specifying the value chain customer

By requiring suppliers to take an integrated value chain
management perspective that the suppliers have only one
point of independent demand in the supply chain the enduse customer (see Flint and Mentzer, 2006) Wal-Mart
gained an initial comparative advantage over its competitors.
This perspective is reinforced in the company cheer where the
answer to the question whos number one? is the
customer, always! Occasionally, a supplier attending a WalMart meeting for the first-time has mistakenly replied
Wal-Mart or the shareholder, but they quickly learn that
Wal-Mart expects them to view Wal-Marts customer the
consumer as their customer. However, what about suppliers
to manufacturers who, in turn, supply retailers? That is,
which customer in the value chain should they focus on? For
example, The Peoples Republic of China owns the property

Objective measures
Volume, profitability, and inventory measures have been used
by industrial, business, and retail marketers for several
decades to manage their own businesses. However, it can be
quite new for manufacturers to be managing these metrics at
end-customer levels of analysis on retail accounts. Thus, while
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The evolution of buyer-supplier relationships

Journal of Business & Industrial Marketing

Jared M. Hansen

Volume 24 Number 3/4 2009 227 236

initial purchase quantity and margin are important elements

of the buyers decision, volume is measured by sales at retail
to the end-customer, not sales from the supplier to the retail
buyer. Likewise, profitability is measured by maintained
margin and markdown dollars. Inventory is measured using
weeks-on-hand, sell-through, in-stock, and related metrics.
The metrics are usually also tied together using a return on
investment calculation such as GMROII.

told his district manager, it was made a district-level priority.

By the time the home office was able to contact the district
manager, the local stores had already been organized, the
district manager told the home office what assistance was
needed, and within hours merchandise donations were being
coordinated through the local distribution center and arriving
at ground zero. In contrast, a major beverage manufacturer
required more than a week to process and approve the
paperwork before donations requested by the ground zero
workers could be sent from the manufacturers distribution
center located only a few miles from the disaster.
Believing that success comes from us doing more listening
than teaching (Coughlin, 2003), Wal-Mart corporate buyers
spend Fridays traveling the country meeting customers in
stores or visiting manufacturers operational facilities to help
understand and streamline manufacturing processes or
redesign merchandise logistical processes. Additionally, the
buyers meet jointly with manufacturing suppliers from several
industries and license/brand owners to collaborate on the
company-wide merchandising support of new movies, music,
brands, and fashion trends. Buying teams (i.e. merchandise
departments) meet annually in a meeting with all of their
respective suppliers at once to discuss more macro-level
business concerns and opportunities. Whether it is at the level
of collaboration, co-production, or co-creation, the retailer
expects the suppliers representatives during these meetings to
be empowered with decision making capabilities, from
purchase terms and pricing to product and packaging
configuration to advertising and promotional activities.

Subjective measures: responsiveness

One important part of Wal-Marts philosophy is the Sundown
Rule, which means striving to answer (or at least
acknowledge) any request by the close of business on the
day it is received (Walton and Huey, 1992). Responsiveness
can be a competitive advantage (Arnett et al., 2000), and is
enhanced through the integrated value chain created by the
proprietary inventory system (e.g. Retail Link). Theoharakis
and Hooley (2003) find that the empowerment of individuals
to make adaptations in strategic planning lead to increased
service responsiveness and, ultimately, superior financial
performance. Similarly, Handfield and Bechtel (2002) find
that trust improves the responsiveness in a supply chain.
Their results indicate that even when buyers do not have
much control over their suppliers, working to build trust can
improve supplier responsiveness. This article next addresses
the role of these two constructs, empowerment and trust, in
applying S-D logic to buyer-supplier relationships.
Subjective measures: decision maker empowerment
The empowerment of individuals is part of the Wal-Mart
philosophical evolution in retailing. For example, author
interviews with a previous employee of the Great Atlantic &
Pacific Tea Company confirm that his store manager would
have been terminated if he changed the end-of-aisle-displays
during the companys prominence in the 1950s. Today, the
operations group in many retailers is still penalized if they
attempt to make merchandise decisions. However, the WalMart philosophy contradicts such a centralized approach by
instead emphasizing everyones participation in the
merchandise process. According to Connolly (2000), the
executive V.P. of Marketing at Wal-Mart, it works because
authority is placed in the hands of those with responsibility.
For example, hourly-paid department managers in retail
stores decide which merchandise to feature on endcaps and in
the aisles, inactive merchandise they consider poor selling,
and adjust retail shelf prices to be area-competitive. Store
managers purchase local merchandise and initiate
merchandise markdowns. Regional operation managers
bring in merchandise ideas to the companys Friday
Merchandise Meetings in Bentonville, Arkansas, where
they collaborate with corporate buyers on how to better
serve end-customers in different localities.
As exemplified by Wal-Mart practice, S-D logic requires
that organizations empower those who collaborate most
directly and frequently with the customer, resulting in
increased co-production or co-creation. For example, when
the store manager of a Wal-Mart store one week from grand
opening looked across the river and saw smoke rising from the
New York Twin Towers on September 11, 2001, he told his
store associates to take all the bottled water, boots, gloves,
shovels, flashlights, and other items off the newly-stocked
shelves and load it into the delivery truck that he immediately
drove to the rescue workers (Coughlin, 2003). Afterwards, he

Subjective measures: trust

Trust is central to business relationships and can take many
forms (see Young, 2006). Extending and elaborating on the
sixth foundational premise of S-D logic, the customer is
always co-producer (Vargo and Lusch, 2004, p. 10), WalMart philosophy posits that co-production in buyer-supplier
relationships requires trust. For example, an interviewed
Executive Vice President at Wal-Mart asserts that their
philosophys core is repeated in the long-time company
slogan: Always Low Prices, Always. He then stated that he
is not referring to the phrase low prices, but rather to the
word always. That is, the companys leadership believed
since the companys founding that the company exists to
improve the lives of its customers and that trust, reflected in
the word always, is the central tenet of Wal-Marts
philosophy (McMillon, 2003). Thus, low prices are a
necessary outcome, but not a sufficient explanation, for
Wal-Mart philosophy.
However, in speaking on coproduction, the literature on
S-D logic has used the terms cocreation, coproduction,
and collaboration interchangeably, if not conterminously.
This article advances the integration of S-D logic and buyerseller literature by distinguishing between the formation of
each relational activity. In evaluating the role of trust in a
business to business relationship, trust can be (un)engendered
from two sources: supplier trust (i.e. toward the selling
organization) and supplier representative trust (i.e., toward
the sales person as an individual). While the transfer of
product or service ownership and funding occurs between
organizations, this process is negotiated by individuals. These
individuals can possess a trust independent of their
organization (see Palmatier et al., 2006). As such, four
combinations of trust toward the supplier and its
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Volume 24 Number 3/4 2009 227 236

representative can exist between a buyer and supplier: higherlower, higher-higher, lower-lower, and lower-higher (see
Figure 1). Taking the buyers perspective, in situations of
higher supplier, lower representative trust, co-production
typically occurs as the buyer works with the supplier (e.g.
CPFR agreements). In situations of lower supplier, but higher
representative trust, collaboration can occur as the buyer
seeks the input of the representative, but does not trust coproduction between the two organizations to occur. In
situations of higher supplier, higher representative trust, both
co-production and collaboration can occur, resulting in
the potential for co-creation. Depending on strategy,
organizations may want to avoid lower-lower trust
combinations by moving towards the right and upward in
the trust matrix shown in Figure 1.

horizontal information sharing and trust is lost, fearing that the

relational partner would share similar information with a
companys competitors. Too little horizontal information
sharing and trust is still lost, believing that the relational
partner is neither integrated nor interested in the relationship.
Philosophy adoption, adaptation, and rift
While the adaptation of an increased end-customer focus by
suppliers provided Wal-Mart an initial comparative
advantage, the advantage has decreased as other retailers
and manufacturers have begun adopting Wal-Mart
philosophy. In the words of Spethmann (1999, p. 1), If its
happening at Wal-Mart today, itll be common practice five
years from now first in packaged goods, then beyond.
Continuing with the previous example, Royal Philips
Electronics, a major electronics manufacturer for Wal-Mart,
recently posted on their corporate website that they made a
paradigm shift from Purchasing to Supply Management . . .
changing [the] nature of Philips supply base and our
relationships with our suppliers . . . work[ing] with selected
suppliers and outsourcing manufacturers who can act as
partners integrated in our business processes (Philips
Electronics, 2004). This includes hosting supplier summits,
attempting integrated purchasing and forecasting systems,
developing a Partners for Growth strategic supplier
relationship management program, and attempting to
include suppliers in early stages of product innovation
resulting in co-production and increased value chain
advantage to Philips. In addition to many other
manufacturers adopting or adapting a similar approach to
the Wal-Mart philosophy, many of Wal-Marts competitors
have adopted similar practices.
As a result, Wal-Mart has continued to look for other
comparative advantages in its value chain, such as
manufacturer adoption of RFID bar codes. This would
result in more accurate inventory figures, reducing out-ofstocks, and faster checkouts for the retailer and its customers.
Also, Wal-Mart has begun measuring its suppliers on their
ability to reducing packaging (Kollath, 2006). However,
packaging is one of the last methods suppliers have to
communicate to their end-user customers, especially for
EDLP environments where there is less advertising and
couponing. Likewise, several other major initiatives have been
undertaken, with two of them also receiving less than
favorable attention by suppliers: private label merchandise
and global sourcing. As the private label merchandise quality
at Wal-Mart and other retailers has improved, branded
manufacturers who do not want to lose market share can
either lower prices or emphasize quality and other attributes
in its relationships with the end-customers. Likewise, global
sourcing increases the pressure to be price competitive.
Suppliers must either outsource production or emphasize
other elements of their relationships with the end-customers.
Resultantly, many manufacturers have sought out more
meaningful co-production and co-creating with their
customers customers (i.e. consumers), emphasizing a logic
of goods and services (see Brodie et al., 2006) versus the
retailers emphasis of goods towards services. Thus, the same
philosophy that once provided a distinct comparative
advantage to Wal-Mart is now being used against Wal-Mart
by manufacturers who are competing with Wal-Marts private
label merchandise for Wal-Mart shelf space and customer
purchases.

Subjective measures: information sharing

Achrol and Stern (1988) propose that organizations collect
information from other members in their channel. Sinkula
et al. (1997) indicate that these members share information
both vertically and horizontally in the channel. The author
proposes that information sharing in buyer-supplier
relationships can occur in three ways:
1 Vertical information sharing (i.e. information about
customers needs and trends or supplier constraints and
strategies).
2 Horizontal information sharing (i.e. information about
competitors at the seller or buyer level).
3 Information dissemination (i.e. the depth, breadth, and
speed of information sharing with customers and others).
While vertical information sharing is typically viewed positively
in a service-centered logic, horizontal information sharing
requires caution (beyond legal considerations). Too much
Figure 1 The buyers trust matrix: service-centered outcomes

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Conclusions

invites only a few dozen core suppliers to its annual Supplier

Summit Meeting, unlike Wal-Marts open invitation to all
suppliers.
While organizations may find that co-production or cocreation can vastly stretch the efficiency or effectiveness of
their available resources, they should be aware of potential
negative consequences. For instance, many retailers began
implementing a category captain concept in the mid-1990s
where one supplier per merchandise category, when selected,
dedicates a person to analyzing the category level business for
Wal-Mart or another retailer. While the role requires
additional supplier resources with no increase in either
information or sales back to the supplier, it can provide
greater trust in the buyer/supplier relationship. In fact, many
manufacturers seek out such positions because they believe
such are one method of obtaining key supplier status. See
Ulaga and Eggert (2006) for a review of the benefits of key
supplier status. However, category captains have potential
reputational and legal problems for the retailer. First, some
governments are not keen on a person in manufacturer A
having sales information on manufacturer B. Second, the
practice itself can create feelings of alienation for other
suppliers. As a result, retailer buyers have learned that they
must visibly demonstrate that these relationships are actually
category advisors, not category captains.
If tighter integration is chosen it also introduces two more
potential scenarios. First, as a supplier or buyer is increasingly
integrated, they can become more dependent upon the
relationship for long-term prosperity. Thus, organizations
must strategically choose between the risks of competitive
threat (i.e. an exclusive supplier) versus accusations of putting
the supplier out of business should the company discontinue
the product(s) from that supplier as market needs change.
Second, according to the author, there is usually a positive
correlation between integration and reputation spillover. For
example, the recall of Firestone tires affected many
consumers opinion on the Ford Explorer, the silicone
breast implant lawsuits of Dow Corning were filed against
Dow Chemical, and the illegal hiring of immigrants by
janitorial subcontractors resulted in an $11 million fine to
Wal-Mart. Other recent spillover affects include Enron on
Arthur Anderson and Martha Stewart on Kmart. However,
this article does not suggest that spillover effects from
integration are bad of themselves. For instance, each of the
preceding examples was actually once touted as a good thing.
What this article does imply for practitioners is that the
integration of suppliers or customers in attempts at coproduction or co-creation should be chosen and managed
with care.

Implications for practitioners

A few marketers may ask, because I never plan on doing
business with Wal-Mart, how does this apply to me? Da Silva
et al. (2002) indicate that retail buying is a particular form of
industrial buying with complex customer and supplier
relationships. As manufacturer and industrial marketers
attempt to develop and participate in more service-centered
models of exchange, they will be subject to the same
relationship complexities, increasing the amount of required
organizational resources.
Thus, the transition towards a S-D logic for business to
business and industrial markets has broader organizational
implications, regardless of whether a particular organization
does direct business with Wal-Mart. For instance, other retail
organizations have begun adopting the Wal-Mart philosophy
towards information sharing and systems. Thus, a
manufacturer will be required to use Targets
PartnersOnline, J.C. Pennys Supplier Internet Site,
Tescos Store Control Centre, and METRO Groups
Future Store Initiative in a similar manner to Wal-Marts
Retail Link. This includes supplier summits, EDI
transmissions, vendor-managed inventory, and RFID
initiatives, among other processes to integrate the supply
chains. See Graham and Hardaker (2000) for additional
listings. In addition to providing evidence that this is the way
the world really works beyond Wal-Mart, it more
importantly suggests that adopting a service-centered logic
can require significant investment. That is, if a particular
industrial or manufacturing organization has a dozen
customers, they could have to manage up to a dozen
integrated inventory systems in addition to their own system.
Thus, the size of ones customer base can become a major
obstacle to establishing a service-centered logic in businessto-business purchasing relationships. Further, an emphasis on
trust in a service-centered logic can have two major
consequences. First, organizations will attempt to acquire
the sales representatives and analysts with the best
reputations. Thus, they often will attempt to poach (i.e.
hire away) individuals both vertically and horizontally in the
value chain (Gardner, 2005). As a result, organizations will
have to strategize how to both do this (to others) and deter
this (from happening to them).
The second major consequence of an emphasis on trust is
the increased importance of team selling. This concept
involves more than dedicating a sales representative, an
analyst, and an office assistant for daily inventory
management although those are important elements.
Team selling often involves officers or executives from sales,
marketing, operations, and product development. While
large, multinational manufacturers such as G.E. Plastics or
Dow Chemical may have the resources to have several
executives attend buyer/supplier meetings, smaller
manufacturers and industrial organizations often do not
have the resources. Or, they may simply not have that many
people to send if the functions are integrated into fewer
positions within one department.
The transition to S-D logic also raises the question of how
many B2B relationships should be service-centered for an
organization. Continuing with the example of Royal Philips
Electronics, the manufacturer is attempting to decrease the
total number of its suppliers (Philips Electronics, 2004). It

Implications for academics

Schumpeter (1954) encourages detailed examinations of the
history of industries, including single firm studies as well as
innovation histories. This article discusses several innovations
in S-D logic that converged within a particular, powerful firm,
Wal-Mart, and then were adopted and adapted by its
estimated 61,000 manufacturers such as Royal Philips
Electronics and, in turn, their myriads of industrial
suppliers such as ElecSound positioning the articles
contribution toward a history of S-D logic development across
levels of B2C and B2B buyer-supplier relationships industries
rather than a single firm study.
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Volume 24 Number 3/4 2009 227 236

Subsequent research is needed that compares and contrasts

a S-D logic in task-oriented versus more hedonic purchasing
orientation for both B2C and B2B relationships. Not all
buyers are interested in co-creation, which requires time
investment. Indeed, time has become a major variable in
the typical buyers decision process of choosing a supplier.
Time is the one variable that cannot be refunded or
exchanged. On the B2B side, several interviewed Wal-Mart
suppliers indicate that time management is crucial, given that
they may only meet with the buyer quarterly for one hour.
Also, the proposed buyers trust matrix in Figure 1 could be
used as a framework by academics teaching marketing to
explore different business to business marketing relational
strategies. For instance, academics could explore under what
market conditions sellers or buyers might prefer transactional
versus collaborative relationships.

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marketing practices of consumer and business-to-business
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Industrial Marketing, Vol. 16 No. 5, pp. 382-98.
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customer orientation in the context of buyer/supplier
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the American Economy, Penguin, New York, NY.

Concluding remarks
Wal-Mart was among the very first organizations to undertake
the technology advances and sharing of information (Johnson,
2002). It is also the worlds largest and most powerful
company (Fishman, 2006). Thus, while advocates and critics
of the company may vocally differ as to the net benefits of the
global retailer on a society, they inherently agree that the
retailer has had a tremendous impact. Part of that impact has
been the widespread diffusion and adoption of an increasingly
S-D logic across retailing, business, and industrial markets as
its information sharing philosophy has evolved into integrated
supply chains.
Building on the analogy in the introduction, it is difficult to
visualize effectively dancing with two partners at the same
time. If the diffusion of the philosophy that converged in WalMart has a bearing on S-D logic, then S-D logic must choose
between two partners (i.e., retailers and manufacturers) that
are developing different goals and strategies surrounding the
customer-centric philosophy. Further research on this
emerging conflict in manufacturer purchasing relationships
would provide greater insight into the potential future
academic conflict as the emerging S-D logic is adapted in
other disciplines.

Note
1 After constructing the buyer-perspective framework for
supplier sales force evaluation, the author became aware
of the insightful supplier-perspective framework of Walter
et al. (2001). While addressing a differing a topic from a
different viewpoint, the direct and indirect categories
in their supplier-perspective framework can be
incorporated into objective and subjective
categories, respectively, presented here.

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About the author

Jared M. Hansen is assistant professor of marketing at the
University of North Carolina at Charlotte. His research is
forthcoming at the Journal of Retailing, Strategic Management
Journal, and other leading business journals, and it has been
presented at numerous national and international marketing
and strategy conferences. Prior to the PhD, he received an MBA
and BS from Brigham Young University and was a
Corporate Buyer for Wal-Mart Stores, Inc. among other
professional experiences. More information on his research is
available at http://belkcollegeofbusiness.uncc.edu/jaredhansen
Jared M. Hansen can be contacted at: jared.hansen@uncc.edu

Further reading
Hansen, J.M. (2006), Developing a trust language in the
service-dominant logic: cocreation, coproduction, and

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