Homecenter.com
Over the past two decades, the adoption of communication technologies that link marketing channel members has led to modified buyer/supplier interactions and structures. These technologies, termed interorganizational systems (IOS), are electronic buyer/supplier information exchanges that facilitate business transactions and increase the efficiency, competitiveness, and profitability in channels. Universal Product Code (UPC) barcoding, an IOS technology, was researched in the context of effects on channel relationships. UPC barcoding allows retailers to point-of-sale (POS) scan merchandise at the customer checkout and is an essential tool for inventory control and management. Retailers strongly encourage, and in many cases require, suppliers to provide UPC-barcoded products. As a component of the product offering, UPC barcoding is a non-core attribute that strongly influences supplier choice criteria.
OVERVIEW OF THE BUYER/SUPPLIER ENVIRONMENT
Research hypotheses were tested using data collected from wood products suppliers and retail homecenter buyers. In the homecenter industry, a number of interorganizational system (IOS) technologies are being adopted. These technologies link them with wood products suppliers and result in shortened order cycles and improvement in inventory replenishment and management (19). Wood products suppliers to these homecenter retailers are expected to adopt IOS technologies in order to remain competitive, since homecenter retailers may select only those wood products suppliers capable of IOS technology.
An emerging IOS technology important to homecenters is Universal Product Code (UPC) barcoding of individual products for point-of-sale (POS) scanning at the cash register. Vlosky and Smith (21) report that homecenter retailers implement UPC barcode POS scanning for a number of specific reasons, all of which are intended to increase efficiency, profitability, and competitiveness.
IOS TECHNOLOGY AND BUYER/SUPPLIER RELATIONSHIPS
IOS systems are based on information technology that transcends organizational boundaries. IOS technologies such as electronic data interchange EDI)1, barcoding for inventory management and control, and UPC barcoding support new approaches to managing product flow based on just-in-time (JIT) or quick response (QR) logistics strategies (24).
IOS technology adoption changes the way companies interact. Before addressing specific relationship impacts, we will present a brief review of buyer/supplier relationship research. Generalized models describing relationship interactions have been proposed. These models discuss antecedent conditions and processes for buyer/supplier exchange relationships (9,11-13,15). In addition to generalized models, specific channel dyadic interactions and relationships have been studied. For example, in the manufacturer-distributor context, models and conceptual frameworks that investigate relationship structures and success factors have been developed (2-5). In the manufacturer-homecenter retailer arena, Wortzel and Venkatraman (27) examine relationship linkages that support homecenter retailer competitive strategies and performance and manufacturer support activities.
With regard to effects of IOS adoption on relationships in channels, Clemons and Row (6) found that new IOS technology intended to coordinate business activities between buyers and suppliers are often met with distrust, ambivalence, and open resistance by exchange partners. They believe that some companies may never realize the potential benefits of cooperation and coordination between supplier and buyer that accompanies IOS technology. Taking a longer term perspective, Han (11) and Han and Wilson (12) see technology as the foundation in the development of structural bonding which, in addition to social bonding, constitutes the basis for relationship development. Accordingly, it is hypothesized that in the long term, adoption of IOS technology can affect the stability of channel relationships by developing structural bonds.
CORPORATE STRATEGY AND IOS
Vlosky and Smith (21) suggest that IOS technology represents a means by which products may be differentiated and business relationships enhanced and may serve as the basis for long-term and sustainable competitive advantage. Porter (18) cited technological change as one of the principal drivers of competition and competitive advantage in the value chain. In addition, he suggested that technology can shift the bargaining relationship between an industry and its buyers, create buyer/supplier interdependencies, and generally modify industry and channel structures. Parsons (17) describes a "strategic gap" that exists when companies do not implement available advanced information technology. He suggests that competitively, firms in industries where channel relationships are being altered by technology must be concerned with 1) consequent effects on relative power; 2) how technology affects the rate of new entry into industries by negating existing entry barriers or creating new ones; and 3) how technology changes industry structures by affecting rivalry bases among competitors within an industry. In addition, Konsynski and McFarlan (14) suggest that IOS technology improves the ability to compete by facilitating cooperation and partnership development with exchange partners. Partnerships may provide for shared investments in hardware and software, lead to reduced risk in leading-edge technology adoption, and serve as a new basis for supplier differentiation.
However, as exchange partners make the transition from paper-based to electronic-based communication, a number of events take place. IOS technology impacts all functional areas in channel organizations including documentation requirements, business procedures, personnel role modification, communication channels and modes, and transaction cost structures (25). As channel and business procedure practices progress to an electronic environment, these changes can create short-term system stresses.
A MODEL OF IOS-IMPACTED RELATIONSHIPS
The transition to an electronic business environment has distinct short- and long-term effects on channel relationships that occur in different stages. (Fig, 1) (23). The relationship before IOS adoption (to) is assumed to be stable and to have gone through the expansion phase in the relationship development process, as described by Dwyer et al. (9), where exchange partner roles are firmly established and performance requirements are mutually satisfactory. A benchmark level of commitment (Co) exists at this stage. It is proposed that IOS technology introduction into the relationship leads to disequilibrium and reduces relationship satisfaction and level of commitment (C1) for both parties (t1). It is not until later in the IOS technology-impacted relationship process (t2) that realized expectations of long-term relationship stability lead to strengthened structural bonding. Adjustment and accommodation typify the process toward re-establishment of trust, interfirm bonding, and commitment (C2) at or above pre-IOS adoption levels. With the introduction of IOS technology into the relationship, commitment drops and then regains ground in the long term (Co > C1 <>
The factors that determine pre-IOS relationship strength, countered by relationship stressing impacts, determine the width and duration of the "Relationship Satisfaction Gap" depicted as the trough in t1. Vlosky and Wilson (24) identified IOS-induced relationship stresses that create the "Relationship Satisfaction Gap" and gap counter forces. This gap is minimized when exchange partners are cooperative and exhibit a high degree of understanding and commitment to the other party through the IOS implementation process. Additional factors that minimize the gap include trust that has evolved in the relationship over time, the existing mutually accepted power balance, the level of importance that the exchange partner represents from a strategic perspective, and the general relationship structure.
A number of possibilities exist that may explain short-term relationship disruptions. First, both homecenter retailers and their wood products suppliers make investments solely to accommodate linking technology requirements. Specific investments such as these are of considerably less value outside the focal relationship (13). By making idiosyncratic investments in a relationship, channel members create incentives to maintain the relationship (1).
Homecenter retailers that scan UPC barcodes make specific technology investments by installing POS barcode scanning capabilities that require supplier support to function effectively. Wood product suppliers also make specific investments in developing UPC barcode application capabilities to satisfy customer requirements.
In addition to the financial costs, implementing unfamiliar technologies may have other negative effects on wood products suppliers. The typical supplier behavior to accommodate customers is an example of exercised power, as distinguished from latent or potential power. The customer mandating to the supplier to meet their IOS technology needs is consistent with the definition of channel member power given by E1-Ansary and Stern (10): The ability of a channel member to control marketing strategy decision variables of another member in a given channel at a different level of distribution.
From the buyer's perspective, short-term relationship stresses stem from a sense of frustration that wood products suppliers are not reacting swiftly or efficiently enough in implementing IOS technology. Konsynski and McFarlan (14) found this to be the case with many companies that initiate EDI. These companies were often shocked to find partners unable to assimilate even modest data technologies and applications. Homecenter buyers are also often frustrated at supplier lack of understanding regarding IOS technical fundamentals and implementation.
HYPOTHESES
The propositions and hypotheses center around the notion that short-term relationship disruption is due to differences in perceptions between wood products suppliers and their homecenter customers on how IOS technology should influence the relationship. These perceptual differences were tested in hypotheses H1, H2 and H3. First, homecenter customers, the initiators of technology, may perceive themselves to be in a position of power in the relationship as wood products suppliers attempt to respond quickly to their technical requirements. However, wood products suppliers that successfully satisfy customer IOS requirements early in the technology process may believe that they are in a favorable position because the IOS technology they provide is available in the short term from only a few wood products suppliers.
P1: The short-term channel relationship deterioration that results from IOS technology adoption is caused by the differences in how buyers and suppliers perceive the dependence that exists after IOS technology adoption.
H1: The greater the difference in perception of dependence, the greater the relationship deterioration.
Significant idiosyncratic investments may be made by both buyers and sellers when IOS technologies are implemented. These investments may be a means for improving process efficiencies that, in turn, make a positive profit contribution , or may simply be strategic costs of doing business incurred to maintain or develop market position. In any event, these investments are not readily redeployable to alternative business activities. One issue that complements the specific investment issue is the question of value that should be received for making these investments. One measure of value, the incremental price for implementing a customer-mandated IOS technology, was examined.
P2: The short-term channel relationship deterioration that results from IOS technology adoption is caused by the differences between how buyers and suppliers perceive the value of the IOS technology to the other partner.
H2: The greater the difference in buyer/supplier perception of IOS value, the greater the relationship deterioration.
IOS technology implementation can be an exasperating experience for companies that have little or no prior experience. Frustration can be compounded for wood products suppliers if technology adoption is customer mandated with seemingly impossible deadlines or when the technology is in the early phase of adoption in their industry. Wood products suppliers in this study faced both circumstances.
P3: The short-term channel relationship deterioration that results from IOS technology adoption is caused by disparate buyer/supplier perceptions of appreciation by the other exchange partner for the effort required to implement IOS technology.
H3: The greater the difference in perception of effort required to implement IOS, the greater the relationship deterioration.
Although there may be exchange partner frustration in the short term, the reward often is the expectation of a strengthened long-term relationship. The wood products industry is characterized by commodity products offered by many suppliers in an intensely competitive environment. Those suppliers that adapt to customer technology requirements believe that their market position will eventually be secured and anticipate subsequent future relationship stability. Homecenter buyers are also thought to initiate IOS technology with preconceived expectations of long-term relationship stability.
P4: In the long-term, after periods of disruption and relationship readjustment, IOS technology adoption strengthens channel relationships (t2 in Fig. 1)
H4: As more time passes after IOS implementation, the channel relationship becomes stronger.
The homecenter retail industry is but one customer base for wood products suppliers. Most wood products are used for construction and industrial applications that do not require the application of UPC barcodes. In addition, not all homecenters require wood products suppliers to barcode their products. Buyers and sellers that continue to conduct business in a non-IOS environment do not experience technology-induced relationship disruptions and, as such, should have better short-term relationships with exchange partners.
H5: The short-term relationship between buyers and suppliers who have not adopted IOS technology is stronger than between IOS technology adopters.
METHOD
DATA COLLECTION AND RESPONSE RATES
The study sample consisted of the 500 largest (by sales) homecenter retail companies in the United States. The National Home Center News "Annual Retail Scoreboard" (16) was used to identify and select sample frame members. The Directory of Home Center Operators and Hardware Chains (8) was used to identify key employees of sample frame companies. The sample design was determined to be most appropriate due to the belief that larger, more influential homecenters are early adopters of IOS technologies (22,26), a premise that was found to be statistically significant (19). The sample of the 500 largest firms represents 67 percent of the 1992 $67 billion homecenter industry, with the range of sales revenue by firms in this group from $7,148 million to $12 million (16).
On the supplier side, the sample consisted of the 597 largest (by sales revenue for distribution intermediaries and by volume for manufacturers) wood products companies in North America taken from 8 supplier populations (manufacturers of 7 major product groups: softwood lumber, hardwood lumber, treated lumber, softwood plywood, particleboard, medium density fiberboard, and oriented strandboard/waferboard, as well as distributors/wholesalers), Industry directories were used to identify and select sample frame members and to identify key employees. As is the case with homecenter retail buyers, the purposive (judgment) sample design was determined to be appropriate (20).
The study was conducted using mailed surveys. Survey development and implementation followed methods and procedures recommended by Dillman and described as the Total Design Method (TDM) (7). Accordingly, the mail questionnaire procedures, including pre-testing, pre-survey notification of the initial mailing, a post-survey reminder, and 2 additional survey mailings resulted in an adjusted response rate for homecenters of 35 percent (177 usable surveys from 500 firms) and an adjusted response rate for wood products suppliers of 50 percent (272 usable surveys from an adjusted sample size of 540 firms).
There were 54 wood products suppliers capable of using UPC barcoding and 16 homecenter retailers. The low number of IOS-capable companies indicates the early stage of adoption in this industrial channel.
PROFILE OF RESPONDENTS
The 1992 average sales for the 177 homecenter retail respondents was $177 million and ranged from $12 million to $7.1 billion. The 177 responding homecenter companies represented $30. billion in total sales in 1992 or 33 percent of the entire homecenter industry (16). To illustrate the importance of large multi-store companies in the homecenter industry, just 15 percent of homecenter respondents (26 companies) account for 88 percent ($28.3 billion) of total 1992 respondent sales. Point-of-sale scanning homecenters are characterized as large (sales > $100 million) multi-store chains (20).
Respondents for the seven wood products manufacturing sectors surveyed represented an unweighted average of 47 percent of total North American production in 1992 across all sectors (22). Distribution intermediary respondents represented over $18 billion in revenue in 1992. As is the case with homecenter retailers, large wood products supplier companies lead in implementing UPC barcode technology to serve the homecenter customer base, with respondent UPC barcoding company production being 218 percent higher on average than that of non-UPC barcoding companies in 1992 (19).
MEASURES
Homecenter retail customers and wood products suppliers responded to questionnaire items to assess short- and long-term effects of technology adoption on their business relationships. The following measures were used: dependence-power, short-term commitment, long-term commitment, supplier adaptation to customer technology requirements, and sensitivity to supplier technology implementation challenges and customer technology needs. Items used 5-point scales indicating varying levels of agreement (1 = strongly disagree; 3 = neither disagree nor agree; 5 = strongly agree).
Paired questions were asked of buyers and wood products suppliers for each of the key measures and although these pairs conceptually are parallel, question wording was problematic. An attempt was made to minimize confusion by presenting results in a paired format.
RESULTS
In testing hypotheses related to short-term channel relationship disequilibrium, the items in Table 1 were used. (All results in Table 1 are for technology adopter respondents.)
Dependence was measured with questions regarding exchange partner importance in the relationship, general dependence, and specific technology investments made. All measures are statistically significant at a = .05 for 1-tailed t-tests, except for the degree of importance that buyers and sellers ascribe to themselves due to the volumes of product they buy or sell to technology-capable exchange partners. Differences are greatest in perceptions of supplier adaptation to customer IOS requirements and in the degree of specific technology investment.
Perception of value to the other partner was measured by asking whether a premium should be paid by customers for barcoded products. Buyer/supplier disagreement on whether such a premium should be paid is strongly significant at a = .05 for a 1-tailed t-test.
Effort expended was measured by asking homecenter retailers if they appreciate the technical challenges that wood products suppliers face in supplying barcoded products to them, and by asking wood products suppliers if they believed their customers in fact appreciated the challenges they face. The difference in buyer/supplier perception is significant at a = .05 for a l-tailed t-test.
Long-term strength of relationships was tested in two ways. First, by using both summary and detailed measures found in Tables 2 and 3, and second, by doing an analysis of variance (ANOVA) for an index of relationship measures for four successive time periods since implementation.2
Both buyers and suppliers were asked questions regarding their short- and long-term relationships with exchange partners. Table 2 compares the answers of buyers to suppliers and shows that the two groups did not statistically differ in the degree of agreement regarding short and long-term relationships. Table 3 compares the answers regarding a short-term situation with the answers for a long-term situation. When asked to compare their relationships with UPC-capable customers versus non-UPC customers, suppliers indicated that their relationships would be better with UPC customers in both situations, but the degree of agreement was significantly stronger (a = .05) when considering the long term. For buyers, agreement was also stronger in the long term, although the difference was not significant at a = .05. However, a p-value of.08 and t-value of -1.45 lend support to this hypothesis for buyers. This lack of significance at a = .05 is attributed to a lack of statistical power due to a small sample size (n = 16).
ANOVA yielded significant differences between relationship strength and the time period of UPC adoption for both buyers and suppliers at a = .05. Relationship strength was measured by indexes of relationship questions for both buyers and suppliers at the four different time periods. Even with small sample sizes, a strong positive linear relationship existed between relationship strength and time since companies began barcoding. Figures 2 and 3 show that the pattern of means for respondent companies for selected relationship questions over the four successive implementation periods further support our model. In some cases, relationship strength declines and rebounds over time; in other cases, relationship strength is positively related to length of relationship over all four time periods.
Short-term relationship quality (H5) was tested using the items in Table 4. UPC-capable buyers did not significantly differ from non-UPC buyers in their degree of agreement with selected relationship items. The same was true for suppliers, except for the item regarding the investment of time and expense. Although differences were detected and all are directionally as hypothesized, Hs was rejected at a = .05. It is important to note that, because both wood products suppliers and buyers are in the early stages of UPC implementation, the sample sizes of implementers are small vs. non-implementers (homecenter buyers: 16 implementers vs. 161 non-implementers; suppliers: 73 implementers vs. 143 non-implementers).
DISCUSSION
The results from this study suggest a number of implications regarding the impact of IOS technology on the relationships between homecenter buyers and wood products suppliers. Four of the hypotheses were supported reasonably well by the data, indicating that channel relationship deterioration does occur during early stages of IOS technology adoption. The data reveal a number of factors that contribute to this disequilibrium. The primary reason for relationship disruption is the chasm between buyer and supplier perceptions of the relationship status. In the short-term, there appears to be little sensitivity and understanding regarding exchange partner efforts to adopt this channel technology. Buyers are wary of supplier commitment to developing solutions in a timely manner and suppliers feel pushed to quickly adopt an unfamiliar technology without adequate customer support. Financially, wood products suppliers think their customers should compensate them for their efforts, but customers are vociferous in their opposition and are steadfast in not paying a premium for barcoded products. Over the course of time, relationship strength and satisfaction increase as exchange partners adjust to IOS technology. As channel members become accustomed to the relationship as it has been modified by IOS technology, the shocks to the relationship system seem to dissipate.
A realization that IOS technology is not extraordinary and that it is becoming a requirement for doing business leads to the anticipation of a higher quality relationship in the future. Both homecenter buyers and wood products suppliers feel that they will indeed have better business relationships with their technology-capable exchange partners in the long term than they have with them today.
LIMITATIONS AND FUTURE RESEARCH
Although this exploratory analysis identified a number of issues, limitations exist in the study. First, the analysis was conducted post-hoc using data collected as part of a broader research study. Second, a single IOS technology was studied in one channel. In order to generalize the stated conclusions, parallel studies should be conducted that examine other IOS technologies in this and other channels. Third, IOS technology in the wood products supplier and homecenter buyer channel is in the early stage of adoption, which does not allow for confirmation that long-term relationships eventually stabilize or exhibit relationship strength higher than found at pre-implementation. As technology adoption diffuses to other channel members, a temporal study might be conducted to examine long-term relationship stability. As a result of this channel being in the early stages of technology adoption, there is a small homecenter buyer sample size. Buyer data supported our hypotheses but the small sample size (n = 16) has low statistical power.
There are significant opportunities to build on this exploratory research, such as studies to investigate if other building material industries and marketing channels experience short-term relationship disruption as a result of IOS technology adoption and to identify underlying reasons for differences in buyer and supplier perceptions identified in this study. Although this study generates a number of questions, it has shed new light on implications for IOS technology adoption for wood products suppliers and their homecenter customers.
