Manufacturer price reduction pressure and supplier relations

Abstract

Purpose Manufacturer price reduction pressure on suppliers is an important contributor to helping a manufacturer maintain a strong competitive position by keeping costs low. The benefits of trusting supplier working relations also help strengthen a manufacturer's competitive position. The purpose of this paper is to determine if manufacturer price reduction pressure and trusting working relations with the pressured suppliers, typically considered to be mutually exclusive, can co‐exist. Design/methodology/approach A structural equation modeling approach was used to analyze data covering 946 production buying situations involving 279 suppliers and six NA automotive OEMs. Findings Manufacturer price reduction pressure and trusting working relations with the pressured suppliers, are not mutually exclusive, they can co‐exist. Research limitations/implications The research found that it is not the pressure that impacts the manufacturer – supplier relations, but rather it is the manner by which the manufacturer goes about pressuring its suppliers that impacts its supplier working relations. The research, however, does not directly address how a manufacturer can achieve both ends simultaneously. Practical implications Manufacturers no longer have to choose between exerting price reduction pressures on suppliers or working to achieve trusting relations with suppliers. They can successfully do both. At the same time, suppliers must recognize that these conditions may occur and when applied simultaneously ultimately benefit both parties. Originality/value This research adds to the critically under‐researched B2B pricing processes and pricing impact areas, while helping to influence managerial actions, an area in which academic B2B research is considered to be lacking.

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