Supplier-customer relationships in the United States are changing rapidly. Where once contracts were short-term, arm’s-length relationships, now contracts have increasingly become long term. More and more, suppliers must provide customers with detailed information about their processes, and customers talk of “partnerships” with their suppliers.
Such close relationships between customers and suppliers have had beneficial effects on performance in several areas. Clark found that early supplier involvement in product design was key to Japanese automakers’ edge in introducing new models both faster and with fewer total labor hours than their U.S. and European counterparts.1 Noordeweier, John, and Nevin found that more “relational” purchasing arrangements reduced acquisition costs during uncertainty.2 And Heide and John found that mutually dependent customers and suppliers invested more in specific assets.3
Despite the movement toward closer supplier relations in the United States and evidence that such relationships improve performance in a number of ways, there are contradictory trends. Helper’s 1989 survey of U.S. auto suppliers found that customers had increased the length of the contracts they offered, and suppliers were more likely to provide process information.4 However, suppliers still felt a lack of customer commitment, since their level of trust in the customer did not increase. Performance improvements often came at the suppliers’ expense. For example, JIT delivery was not matched by JIT production, so in 1989, 48 percent of suppliers ended up stockpiling inventory to meet their customers’ delivery demands, compared with 20 percent in 1984. In addition, customers often obtained price reductions by reducing supplier margins rather than supplier costs.
To see if a clear trend had emerged from these conflicting patterns, in 1993, we surveyed U.S. and Japanese automotive suppliers (Helper, in the United States, and Sako, in Japan). The surveys yielded an unusually comprehensive database. In the United States, 675 responses came from Japanese transplants and vertically integrated divisions of U.S. automakers as well as independent U.S.-owned firms, for a response rate of 55 percent. In Japan, we received 472 responses from vertically integrated divisions of Japanese automakers and a few foreign-owned companies as well as independent Japanese-owned firms, for a response rate of 30 percent (see the appendix for a description of our survey methodology).<