The Impact Of Trust On Supply Flexibility And Supply Performance In Buyer-seller Relationships: An Empirical Study

Adopting supply chain management (SCM) initiatives first and foremost requires that companies have an extensive focus on all the channel members instead of limiting their view on the internal operation. The emerging methods of integrated supply chain management, such as DRP, VMI and JIT, have become widely adopted practices for companies to cooperate with their supply chain partners. The guiding notion of these movements is to facilitate information flow and thus mitigate the asymmetry of information across the channel. Acting as a key antecedent for effective exchange, trust is posited to be central to successful implementation of supply chain management.The study of trust and interorganizational relationships has been the subject of many articles over the past years. Many empirical studies have verified the positive effect of trust on performance, no matter firm performance or cooperative performance. But still there is a lack of discussion on the mechanism of the effect, especially concerning how trust in partnerships affects supply performance.This study takes a view on the effect of trust in supply chain partnerships. Specifically, this research focuses on the role of interorganizational trust in affecting supply performance from the buyers'perspective. Buying firm trust in the supplier enables effective information transfer and accredits routinely decision process to the supplier, which enhances the supplier's flexibility to market change, and in turn, generates high supply performance. Therefore, we introduce a new construct - supply flexibility - as a mediating variable in the relationship between trust and supply performance. Three main problems this research is trying to solve are: (1) What role does trust play in the supply chain partnership? (2) What is supply flexibility and how is it connected with buyer's trust? (3) What is the proper way to measure supply performance and how is it connected with buyer's trust?The concept of trust is originally explored in social psychology and the study of trust in supply chain management is mainly based on partnership. Therefore, in literature review, this study elaborates role of trust in supply chain partnership. Trust is a key founding principle in the supply chain, and an essential factor in determining the degree of cooperation. The trust literature also suggests that, enhanced trust in partnerships can facilitate information exchange, communication and adaptation between buyer and seller.As mentioned before, supply flexibility reflects a supplier's ability to quickly adjust its supply and relevant plans according to market changes. This study traces the .origin of the concept of supply flexibility and discusses its correlation with supply chain partnership. Supply flexibility is primarily measured by stability in supply, accuracy in sales forecast and stability in market shares. According to the existing research, supply flexibility is positively related to buyer's trust in supplier.The focal point of this study is supply performance, which implies the manifested operation outcome of supplying a product or service to a buyer. Relevant researches reveal that enhanced trust helps reduce transaction costs and mitigate conflicts. Buyer's trust can significantly influence the overall delivery cost, lead time and supply quality. In the mean time, evidence also shows that these supply outcomes is positively related to supply flexibility.Hereby, the study makes the following assumptions:Proposition 1: Buyer's trust in supplier has a positive effect on supplier's supply performanceProposition 2: Buyer's trust in supplier has a positive effect on supplier's supply flexibilityProposition 3: Supplier's supply performance is positively related to its supply flexibility.Proposition 4: Supplier's supply flexibility partially mediates the effect of buyer's trust on supply performance.In the research design section, the partial mediating model is tested using multiple regression analyses. The causal relationships proposed above can be expressed in three equations: Flx =α₀ +α₁*Tru+ε₁---------------------------------------------Equation(1) Per =β₀ +β₁*Tru+ε₂---------------------------------------------- Equation(2) Per =δ₀ +δ₁*Tru+δ₂*Flx+ε₃---------------------------- Equation(3)Where, Tru stands for buyer's trust in supplier, the independent variable Flx stands for supplier's supply flexibility, the mediator Per stands for supply performance, the dependent variableThen, empirical data are collected from Chinese mobile phone distributors, using Likert-type five point scale.The following section presents the process and results of data analysis. Firstly, the validity and reliability of the measuring scale are examined, using Cronbach alpha to test the internal consistency and factor analysis to examine construct validity. After that, statistical characteristics of the data are reported. Correlation analysis indicates that trust, flexibility and performance are significantly related to each other and the two control variables, namely sales volume and total assets have no significant relationship with the three former variables. Finally, regression analysis is conducted to test the hypothesized model. The first model (equation1) tests the relationship between buyer's trust and supplier's supply flexibility. The second model (equation 2) tests the direct effect of buyer's trust on supplier's supply performance. The final step, model 3 (equation 3) examines the mediating effect of supply flexibility in the relationship between buyer's trust and supplier's supply performance.In summary, the assumptions made in the research design section are all confirmed via statistical analysis of the empirical data. Based on the research findings, the study concludes that: (1) the buyer will be more likely to gain higher-quality product and service supply through effective trust-based cooperation with suppliers, who in turn guarantee more competitive products/services, lower prices and better after-sale services; (2) trust requires frank communication with partners. The buyer should be committed to developing the suppliers'long-term competence through improved information sharing, authorization in inventory control, knowledge sharing and R&D cooperation. These can have a positive impact on the supplier's responsiveness to market changes, which in turn, generates ideal supply performance; (3) as to the supplier, a trustworthy identity can not only win valuable information for the firm, but can also constitute a source of long-term competitiveness. Therefore, the business'reputation, i.e. trustworthiness should be managed strategically as an economic asset.