Exploring the role of heuristics in buyer–supplier relationship dynamics

Abstract

Purpose

This paper aims to explore the role of heuristics in the reassessment of relationship events and how it influences perceptions of commitment, fairness and relationship value. It answers the question of how heuristics interrelate with decision-makers’ evolving interpretations of commitment, fairness and relationship value in a specific buyer-supplier relationship.

Design/methodology/approach

This paper presents data from a longitudinal study of an evolving buyer–supplier relationship involving a multinational supplier of fast-moving consumer goods and a medium-sized and highly specialized supplier. It analyzes qualitative data about the use of heuristics in buyer–supplier relationships, and it is based on evidence collected from interviews, presentations, meetings and secondary data.

Findings

This paper shows that a buyer’s unexpected behavior can lead to a reassessment of commitment, fairness and relationship value. Heuristics can delay relationship reassessments, however. The case shows that heuristics have a preserving quality and that the effect of transformative events only slowly changes the perception of the value of the relationship. In this change process, the link between commitment, perceived fairness and heuristics is crucial.

Originality/value

This paper contributes to research on the relationship between buyer–supplier relationships and heuristics. In particular, the paper contributes to the understanding of how relational events in a buyer-supplier relationship change the commitment and perception of fairness, and how heuristics change accordingly. On a more overarching level, the study contributes to our understanding of business relationship dynamics.

Citation

Åberg, S. and Andersen, P.H. (2024), "Exploring the role of heuristics in buyer–supplier relationship dynamics", Management Decision, Vol. 62 No. 11, pp. 3473-3494. https://doi.org/10.1108/MD-06-2023-1089

1. Introduction

It is generally agreed that long-term buyer–supplier relationships are inherently dynamic (Palmatier et al., 2013; Shamsollahi et al., 2021). In many cases, buyers and suppliers interact over extended time-periods, sometimes for decades or more (e.g. Håkansson and Snehota, 1995). It has also been recognized that an important part of relationship dynamics involves personal relationships between individuals in the buyer and seller organizations (Andersen and Kumar, 2006; Bendapudi and Leone, 2002). Buyer–supplier relationships are thus influenced by individual employees and how they represent their firms in business interactions (Guercini et al., 2014). Previous experiences influence decisions related to business relationships (both within the focal relationship and more generally) and because of “the limits to cognitive and economic resources, human decision making is inherently heuristic, yet the specific heuristic used may vary from situation to situation” (De Boer, 2017, p. 33). Several researchers acknowledge that heuristics has received increasing attention within management studies (e.g. De Boer, 2017; Guercini and Lechner, 2021). Generally, heuristics “involve the ability to utilize memory to make quick judgments by exploiting fundamental cognitive abilities” (Schwikert and Curran, 2014, p. 2341).

Buyer–supplier relationship dynamics are important for both parties. They gain importance through the accumulation of relationship events, which drive the development of trust and commitment (Dwyer et al., 1987; Ivens and Blois, 2004). However, there is also a more complex side to how buyer–supplier relationship dynamics and relationship events interconnect (e.g. Villena et al., 2021). As Sabel (1993) points out, cooperation for mutual benefits is not guaranteed, suggesting that the party’s perception of fairness in a relationship is less cumulative and rational than sometimes assumed by trust-building approaches in business relationship research (Gullett et al., 2009; Harmeling et al., 2015; Johnston et al., 2004). Single events in the relationship can challenge relational expectations (Harmeling et al., 2015). Thus, a single event or a chain of events can fundamentally alter perceptions of fairness and evoke a reinterpretation of what the relationship means and the shared norms and values governing the relationship (Weick, 1995). Despite the cumulative and stabilizing effects of continued exchange within a relationship, relationship events can lead one or both parties to reassess the meaning of a business relationship (Shamsollahi et al., 2021; Vanpoucke et al., 2014) and trigger a relational turning point, i.e. “dramatic, discontinuous change to the relationship’s trajectory” (Harmeling et al., 2015, p. 39).

Relationship events can have both positive and negative effects on relationship dynamics. We think that especially events leading to re-evaluation and reassessment of relationships warrant further investigation. When a business partner disconfirms the expectations within a committed buyer–supplier relationship, this can ignite not only a social response but lead the exchange party to reevaluate the exchange parties’ understandings of mutual obligations and norms governing the interaction within the relationship (Harmeling et al., 2015). However, one or both parties’ reassessment of a relationship event is not necessarily cast as positive or negative in the context and can be difficult to categorize retrospectively as such when events unfold (Kostis et al., 2024). Also, the assessment may change over time. Hence, the process through which the reassessment manifests itself is retrospective and happens independently at different organizational levels and in different parts of the organization (cf. Weick, 1995).

Consequently, relationship reassessment processes in buyer–supplier relationships are complex. At the same time, they also are critical for understanding the unfolding of relationship dynamics. The purpose of the paper is to explore the role of heuristics in the reassessment of relationship events and how it influences perceptions of commitment, fairness and relationship value. We ask the question: How do heuristics interrelate with decision-makers’ evolving interpretations of commitment, fairness and relationship value in a specific buyer–supplier relationship? We are also interested in how such changes may affect the heuristics guiding suppliers in other, connected, relationships. We see this process as an important and underexplored aspect of buyer–supplier relationship dynamics.

Our empirical background is a longitudinal case study of relationship evolution and reassessment. The longitudinal case study illustrates how evolving interpretations of relationship events lead to a reassessment of commitment, fairness and value of the relationship and consequently change the heuristics guiding the collaboration. More specifically, changes in a buyer’s approach to suppliers set a relationship reassessment process in motion, which is first modified by heuristics in the buyer–seller relationship, but eventually results in a reassessment of relational value.

The paper contributes to the understanding of how relational events in a buyer–supplier relationship change the supplier commitment and perception of fairness, as well as actors’ perception of relationship value, and how heuristics change accordingly. On a more overarching level, the study contributes to our understanding of the role of heuristics in business relationship dynamics.

The paper is structured as follows. In Section 2, we first discuss business relationship dynamics and link this concept to heuristics and the perception of fairness to study the interactive unraveling of commitments between buyers and suppliers. The theory section is concluded with the model of analysis. In Section 3, we present our methodology, where the extended case method, data collection and analysis are explained. In Sections 4 and 5, the case is presented, analyzed and discussed. Finally, some conclusions – including limitations, implications and suggestions for future research – are presented in Section 6.

2. Business relationship dynamics and heuristics

Within the business network approach, business relationships are “broadly conceived as the continuous interaction and exchange between at least two actors or organizations involving economic and social elements” (Ojansivu et al., 2020, p. 181). Exchange parties commit themselves with the intent to create value – which can be required both individually and lead to a dividend from shared valuable knowledge or “growing the pie” (Cheung et al., 2011). For manufacturers value can accrue, as they “gain access to tacit, hard-to-imitate knowledge through their suppliers” (Zhou et al., 2014, p. 88). Likewise, suppliers potentially learn and build new skills in the form of best practices from interacting with customers (Andersen and Åberg, 2017). However, at the same time as commitments incentivize actors to maintain relationships to accrue benefits, paradoxically, they also lead to adaptations and changes in relationships (Andersen and Medlin, 2016; Alvarez et al., 2021; Jay, 2013), making business relationships dynamic in nature. In this paper, business relationship dynamics is understood as “all the changes that originate on the relationship level between counterparts” (Runfola et al., 2023, p. 146).

Buyer–supplier relationships evolve through the accumulation of relationship events. A relationship event can be defined as an interaction with a sellers’ technology, offerings or practices (Harmeling et al., 2015). In this context, the recollection (or sensemaking) that the involved parties make of these events is essential (Lundgren-Henriksson and Tidström, 2021). As relationships unfold, trust and commitment often develop between the actors, making relationship exit costlier and more complicated (Morgan and Hunt, 1994). Initial mutual exploration of relational intent and capabilities is followed by relationship-specific investments, leading one the one hand to adaptation, trust and commitment between the parties, and on the other hand to knowledge development and cooperative routines across organizational borders (Zollo et al., 2002; Dwyer et al., 1987; Jap and Anderson, 2007). A supplier may therefore go to greater lengths in trying to satisfy a long-term customer and vice-versa as the relationship deepens.

The development of cooperative routines in buyer–supplier relationships suggests that the interactions comprising relationship events become guided by decision-making heuristics, absent from the burden of global rational calculation (Guercini et al., 2014; Yi et al., 2016; Salvato et al., 2017). So far, the role of heuristics in coping with the paradoxical nature of both building and changing the scope of business relationships is not well-researched. According to one definition of heuristics, it is “a strategy that ignores part of the information, with the goal of making decisions more quickly, frugally, and/or accurately than more complex methods” (Gigerenzer and Gaissmaier, 2011, p. 454). These strategies are commonly used by both individuals and organizations since they have been shown to not only save time, but in some cases even “lead to more accurate judgments than weighting and adding all information” (Gigerenzer and Gaissmaier, 2011, p. 451).

Heuristics are thus strategies for easier and less costly decision-making. If one of two alternatives is known, and the other one is not, the known alternative will infer a higher value for a predetermined criterion (Goldstein and Gigerenzer, 2002). If we translate this into how cognitive heuristics work in business relationships, managers are more likely to make fast decisions in favor of a known counterpart than an unknown one, as the involved calculative efforts are smaller (Lewicki and Brinsfield, 2011).

Another set of heuristics is based on emotions (Lerner et al., 2015). It has been acknowledged that the buyer-supplier interaction is “contingent on recurrent personal interaction among individuals from both the buying and the selling organizations” (Andersen and Kumar, 2006, p. 522). The personal interaction is affected both by the individuals’ propensity to cooperate, their perceptions of the counterparts’ trustworthiness, and the positive and/or negative emotions they harbor toward the counterparts (Andersen and Kumar, 2006). Within studies of business networks, there is a dearth of studies on the effect of emotions on business decisions (Tähtinen and Blois, 2011). Yet, it is clear that emotions play a role in decision-making; “emotions constitute potent, pervasive, predictable, sometimes harmful and sometimes beneficial drivers of decision making” (Lerner et al., 2015, p. 799). In addition, Tähtinen and Blois (2011) show that emotions affect the relationship over time and that managers often express emotions retrospectively (when asked to reflect on a relationship).

2.1 Heuristics and perception of fairness

So far, we have talked about heuristics as information processing strategies of single actors. The role of heuristics becomes more complicated on the relationship level. The formation of relational expectations in a buyer or a seller organization can be seen as shaping shared heuristics, that l facilitate decision-making. Relational expectations, which concern how the exchange is being carried out, cover shared understandings of norms and mutual obligations (Harmeling et al., 2015). They may appear in organizational cooperative routines as norms and be ingrained in procedures (such as procedures associated with customers who have a preferred status). A cornerstone of relational expectations is the shared perception of fairness in the relationship (Jokela and Söderman, 2017). Perceptions of fairness is linked to trust and commitment in buyer–seller relationships (Zaefarian et al., 2016). Fairness is in this context defined as “the fair treatment of business partners, including the fair sharing in financial terms and impartiality in both decision-making and in the interpersonal relationships between business organizations” (Jokela and Söderman, op cit., p. 268). Fairness is basically an ongoing appraisal of the relative behaviour of the other party in the relationship when it comes to sharing rewards and matching outcomes and inputs (Ferguson et al., 2014). In this sense, ongoing fairness evaluations are an integral part of heuristics in buyer-seller relationships that are based on the other party’s actions and behaviours (Lind, 2001). Ongoing evaluations of fairness are rule-based and automated decisions are made in lieu of perceived fairness. Konovsky (2000, p. 489) states that: “In business organizations, considerations of fairness appeal to managers, employees, and other organizational stakeholders who see fairness as a unifying value providing fundamental principles that can bind together conflicting parties and create stable social structures”.

Research on the role of interpersonal trust in business relationships has drawn attention to the value of benevolence and forbearance in decreasing the cognitive strain of the people involved (Ring and Van de Ven, 2019). Rather than engaging in contracting, monitoring and global rational calculations, business actors expect the joint interest of continuous collaboration to be of value for both parties. At the interpersonal level of business relationships, the possible organizational tensions that unfold do not immediately connect or lead to clear-cut lines of action. Heuristics thus play a part in the stabilizing processes of business relationships, since they are based on experience and lead to decision-making in accordance with historical relationship events (Guercini, 2012).

There are three different dimensions of fairness in buyer–seller relationships acknowledged in the literature: distributive, procedural and interactional fairness (Jokela and Söderman, 2017; Kumar et al., 1995). Distributive fairness concerns how the economic outcome of activities is shared and how this matches the ongoing efforts and inputs of each party (Jokela and Söderman, 2017; Ferguson et al., 2014). Procedural fairness relates to both economic and social aspects, as it involves the parties ongoing appraisal of collaborative policies, procedures for communication as well as the possibilities of influencing each other’s behaviours (Jokela and Söderman, 2017; Kumar et al., 1995). Finally, interactional fairness relates primarily to the integral interpersonal relations in buyer–supplier relationships, including aspects such as perceived (dis)honesty and transparency in personal exchanges among representatives from the buying and the selling firm (Jokela and Söderman, 2017; Colquitt, 2001).

2.2 Fairness and commitment

Traditionally, in the buyer–seller relationship literature, fairness is seen as an antecedent to commitment. However, we build on Jokela and Söderman’s (2017) idea that these concepts are bidirectionally connected. Ganesan et al. (2010, p. 363) differentiate between calculative and affective commitment within business relationships, where calculative commitment implies “tangible or intangible investments that are specifically tailored to the existing relationship and difficult to redeploy without substantial loss in value”, while affective commitment “involves a strong sense of identification, loyalty, affiliation and obligation”. The different dimensions of fairness outlined above load differently on calculative and affective commitments. Whereas distributive fairness primarily links to calculative commitment, procedural fairness includes both types of commitment. Interactional fairness mainly relates to the affective aspects of commitment.

Maintaining a shared sense of fairness when exchange partners seek to create and divide the value from co-created and shared assets remains a thorny issue in buyer-supplier relationships (Walter et al., 2001). According to Balboni et al. (2017, p. 277), suppliers create value for their buyers in several ways, where “the supplier’s capacity to provide appropriate knowledge to its customers should be considered a fundamental source of value creation”. Thus, when both the buyer and the supplier commit to the relationship, there are benefits to be reaped by both parties. However, “a trusting partnership built on knowledge integration is a hard order” (Revilla and Knoppen, 2015, p. 1408).

What happens then when expectations of fairness are breached? Clearly, expectations are continuously breached in buyer-seller relationships. Breaches need to be perceived by one or both parties as beyond what is sometimes referred to as a zone of indifference, for instance in service marketing research on relationship expectation and disconfirmations (Santos and Boote, 2003). According to Blessley et al. (2018, p. 217), “regardless of whatever contingencies that arise in the course of doing business, if a supplier repeatedly fulfills the obligations of the buyer’s psychological contract, the buyer will deem the supplier as behaving appropriately and have grounds for judging the actions of the supplier as fair”.

As parties affectively as well as calculatedly commit to relationships, however, their expectations of an exchange party’s ability and willingness to reciprocate also increase. Hence, the risk of misalignment in expectations grows with relational commitment (Boulding et al., 1993; Weick, 1995). In conceptualizing transformational relational events in buyer-seller relationships, Harmeling et al. (2015) suggest that events breaching relational expectations can become turning points that disrupt incremental relationship developments and potentially lead to reassessing the value of the relationship and the commitments made to it. Negatively perceived breaches can lead one of the exchange parties to reassess previous events in the relationship and threaten the relationship. According to Ganesan et al. (2010, p. 363), “affective commitment is likely to have a boomerang effect, making the likelihood of switching greater than it would be in a less committed relationship.” This means that the more committed the parties are to the relationship, the more serious a breach of expectations will appear and thus, paradoxically, the less likely that the relationship will continue in its present form.

The conceptual model (Figure 1) provides our starting point for understanding the role of heuristics in relationship dynamics. The model depicts a process within a business relationship where an event is at odds with the heuristics guiding decision-making in the relationship. This dissonance leads to a reassessment of distributive, procedural and interactional fairness and whether the current calculative and affective commitment are aligned with this perception. In the model, we combine the dimensions of commitment and fairness. Subsequently, such an evaluation is expected to cause changes in heuristics guiding the approach to the focal actor as well as to actors in connected buyer–supplier relationships.

3. Methodology

Following Burawoy (1998), we build on the extended case method tradition. Burawoy’s extended case method is a qualitative research approach that involves using a case study as a basis for theory testing and development. The method emphasizes the importance of understanding the social context of the case to generate theoretical insights that can be applied beyond any individual case context; “the importance of the single case lies in what it tells us about society as a whole rather than about the population of similar cases” (Burawoy et al., 1991). In the extended case method, the researcher begins by identifying a particular case or situation and search for a theoretical lens that can help explore the case and provide a deeper understanding of “what is going on” (Wadham and Warren, 2014). By combining these elements researchers use insights from the case context to further nuance and develop relevant aspects of the theory. The researcher may use multiple data collection methods, such as observation, interviews and archival research, to gather data and build a rich and detailed understanding of the case. The researcher then uses this understanding to identify and explore the theoretical implications of the case, often challenging or extending predeveloped understanding of theories in the process (Burawoy, 1998; Burawoy et al., 1991). The aim is both to develop a more general understanding of the social phenomena at play as well as to challenge and thus further the analytical powers of the theoretical perspective. Overall, the extended case method is a way of using cases to generate new insights and theories about broader phenomena, emphasizing the importance of deep and contextualized analysis in developing a strong theoretical understanding.

3.1 Data collection and analysis

In exploratory case research, cases are not found and selected “in the raw” (Soss, 2021). Cases are always partly selected by circumstance and partly by the eye that sees. The iterative process of understanding and theoretical development is described as a systematic combining process, where different facets of theory and insights from data collection are matched and compared to craft a case (Dubois and Gadde, 2002). This process is also sometimes described as casing, detailing the search and exploration processes when seeking out what a case is a case of (Ragin, 2018). The alignment of the case study and the theoretical perspective happened after several iterations, where different theoretical perspectives were used to provide the most effective storyline (Morgan, 1998). Changes in the guiding principles of buyer-supplier relationship interaction surfaced as a critical aspect of the present case. The case study was salient and interesting for several reasons. First, the case context concerns the relationship between a powerful, multinational buyer and a specialized supplier. Given the market presence of this multinational, the role of fairness and heuristics in collaboration have relevance beyond the specific context. By relevance, we here agree with critical realism and Tsoukas (1989) who addresses scientific relevance as the task of exploring possible faculties of realized states in social systems. In this way, we differ from the scientific ideals of positivism. Second, the case is interesting as it presents a situation in which structures and mechanisms which otherwise are hard to observe, become exposed. Heuristics and their role in guiding decision-making are difficult to observe since they are an implied part of the relationship Case situations, such as reactions to transformative events provide ample ground for creating inferences about the otherwise unobservable mechanisms of organizations (Salancik, 1979).

The data material for building the case narrative on relationship dynamics and heuristics have been collected over a period of 15 years – from the initial establishment and growth of the buyer–seller relationship between Norbis Hygiene [1] and the FMCG customer till the aftermath of the relational turning point. Data consists of semi-structured interviews with decision-makers in various parts of the Norbis Hygiene organization as well as data collected through mail correspondence, observation, talks given by firm representatives, industry reports, internal reports and news media clippings. Table 1 provides an overview of the interview data collected during this study. Additional data include about 80 documents, such as annual reports and presentation materials, written internal memos, PowerPoint presentations given to partners and industry-specific materials. We have also drawn on existing, published case studies of the FMCG company and its approaches to supplier involvement.

Interviewees have been located through a snowballing method. Eight interviews have been transcribed and analyzed for building the case – in three incidents with the same interviewee over the 15-year period of data collection. In addition, the case narrative also builds on materials on the FMCG approach to supplier involvement in innovation, informal talks with the CEO of the Conglomerate owning the Norbis companies and with European representatives from FMCG procurement. Data have been analyzed and cross-examined for consistency and a case report outlining the events in the relationship has been built for interrater reliability purposes and discussed with the case company. Subsequently, the case company insisted on anonymity. For this reason, the industry context is also partly anonymized.

In analyzing the material, we have drawn on different approaches for creating and scrutinizing the case narrative (Langley, 1999). We have seen the process we wanted to study as a developmental event sequence, taking care in identifying relationship events from the material and linking these events into sequences (Van de Ven, 2007). We have checked the authenticity of these events and how we understood them through iterative and follow-up interviewing. Process interviewing over time, makes it possible to both explore previous understandings and deepen them further. In building the storyline for Norbis and FMCG, we took a departure from the notion of visual mapping and narration strategies, which both work as intermediary steps for creating overviews over chronological events and help in matching sequences of events with the causal inferences (Langley, 1999). Graphic representations are attractive because they help represent several dimensions and compare patterns unfolding in different locales of the case. Also, they support the construction of a narrative and help us in digging deeper into the data available, as lacunas of insights into case events present themselves. In turn, they have given inspiration for further enquiries. In following this procedure, the analysis was thus carried out iteratively, matching the data material with the theoretical concepts at hand (see Figure 1).

4. The case: Norbis Hygiene

Norbis is a medium-sized supplier of polymer materials with a wide range of uses in industry, from supplying insulation layers for the automotive industry to carpets and with various uses in construction and in the furniture industries. The parent company was founded in the mid-20th century. Today, it is among the five largest producers of this type of polymer material in the world, which is used for many different purposes. Norbis Hygiene, formerly a part of the Norbis group but today an independent company, operates globally with production sites in all economic regions and headquarters in Europe. The manufacturing is a capital-intensive production process. With its specialized production focus and relatively small number of employees, Norbis Hygiene represents a class of internationally operating companies sometimes referred to as micro-multinationals (Dimitratos et al., 2003).

Polymers for use in hygiene products are produced in a flow process where finished materials are supplied as continuous (pipeline) input in customers’ manufacturing processes. As is common with materials that are continuously supplied in a pipeline process, buyer–seller relationships are regulated through long-term supply contracts. A producer of the material relies on supplying large volumes of standard or specialized volumes to a selected group of customers and invest correspondingly in capital-intensive equipment to be able to provide economies of scale, improve logistical flows, etc. However, parallel to the material flow in the pipeline production, there are potential for supplier involvement in customers’ innovation processes as well. One particular use context with a significant impact on how Norbis Hygiene’s production resources are combined and used for innovative purposes are hygiene products.

The personal care area is of great importance for the company. Given the different business demands of the – often large – customers in the hygiene products industry, the company decided to establish a business unit specialized in personal care with a focus on serving these customers. Norbis Hygiene have dedicated specific resources to serve the innovation and product quality demands of these customers. Production of hygiene products, for instance, diapers, incontinence products and sanitary napkins, is both subsumed by strict public health regulation standards but are also associated with demanding customer requirements on how the polymers are manufactured to obtain functionality in the customers’ products that can create differential advantages in end-user markets. For instance, polymers in hygiene products must work with other materials to obtain absorbing qualities, must feel smooth and not create irritated skin conditions, be environmentally disposable, etc. Establishing these qualities, for instance, by changing softness parameters, requires in-depth knowledge about both materials and production technology. For these reasons, suppliers can become critical partner for developing important product qualities for manufacturers of hygiene products.

4.1 Developing the buyer–supplier relationship

The study of the relationship has unfolded over the past 15 years and is rich in detail, with important incidents happening at several analytical levels, including interpersonal, organizational, dyadic and macro-level. An overview of the important events in the buyer–supplier relationship development is presented in Figure 2. Here, black arrows refer to events that are relationship-specific, meaning that they are the consequence of direct buyer–supplier interaction. Grey arrows signify managerial decisions and other events, which address general issues (such as a change in supply management policies in the buying firm), but which impact the focal relationship. Furthermore, outside the relationship and firm realm are important macro-events, which influence the buying and/or the selling firm and which impacts can be traced to the relationship level. In the following, we will discuss these events in more detail.

The impetus for growing the business focus into a separate business was a very close collaboration with a large and global customer in the fast-moving consumer goods (FMCG) industry. This collaboration started in the early 2000s, a few years after Norbis (at this time still not an independent company) entered this business area. They soon became a leading supplier of materials to this customer. The buyer had an elaborated category management policy supporting joint product development activities with clear and specific demands toward suppliers with regard to co-creation and development of products. The FMCG was among the leading producers of FMCG goods, that early embraced open innovation as an operational strategy in supplier collaboration. The main idea of the buyer was to partner with suppliers and mobilize their resources to develop innovations together with them, rather than focusing on building internal R&D resources. In support of this, in their supplier management and development program, supplier activities were supported and matched by internal resources from the FMCG. At the same time, this required substantial devotion from the suppliers they partnered with.

Our relationship with FMCG has been conducive in shaping our skills as a supplier … In the beginning, say from 2003 to 2008, our customer was a fantastic partner for the R&D department in Norbis. They were the market leaders and we admired them for their long-term perspectives and market visions. We developed strong personal relationships to people in the buyer organization and they were much more important to us than the formal supplier collaboration policy. They were the entry points for us to FMCG. [Manager, Norbis Hygiene]

The development of shared expectations and informal norms for how collaboration was carried out was established among the persons involved from both sides of the buyer–seller relationship. There was an almost instant understanding between the people involved, which in a company presentation by one of the managers was described almost as a love affair.

Being and remaining a part of the partner program in the FMCG was a driving objective for Norbis. The supplier created an internal team specializing in understanding and responding to the FMCG development policy and worked to overshoot the expectations of the FMCG and align their activities in the best way possible with that of the very large customer. Meetings between representatives from FMCG and from Norbis were frequent with participation from the CEO of Norbis and head of sales and R&D. At the meetings, FMCG revealed their 5-year planning process in this product category to Norbis and actively consulted them about their advancements in the different segments they catered to in this product category. A broad group of chief developers from FMCG participated in these meetings which often had a fuzzy-front end-agenda, as exemplified in one example given by a sales manager from Norbis.

One of their chief developers brought a soft toy to one of our meetings. He used it to demonstrate a sought-after skin feel to our developers. [Manager, Norbis Hygiene]

Besides these top-top meetings, there were ongoing meetings in joint teams across several development projects that involved both organizations. Sometimes these activities involve connected relationships. A part of Norbis’ efforts with their customer was to engage substantially with their supplier of machinery for the extraction of polymer materials to learn more about how to fine-tune product qualities to fit the quality needs of the FMCG even better. During this process, Norbis technicians developed deep knowledge about how to calibrate the machinery, allowing them to produce at a very high-quality level; while at the same time increasing the strength and decreasing energy usage and the thinness of the material. At the beginning of the relationship, the efforts were crowned with considerable success in terms of deepening the relationship with their main customer. This and several other activities, such as Norbis development of a technology for creating visual effects on their material were examples of initiatives which grew out of Norbis but were supported by FMCG through consulting, knowledge sharing and occasionally also through integrating the potential product features from these technologies in new product descriptions – in this way effectively promising Norbis reimbursement on their development efforts.

Because of developing shared ways of seeing issues and acting upon them, shared heuristics and norms for coordination and collaboration enforced the positive way the relationship was seen by both the supplier and the buyer. Norbis succeeded in being selected as “best supplier of the year” several times in the period 2000–2005, based on both their contribution to the development of new products and their superior product quality and delivery performance. They proudly presented their prizes in the reception area and entry hall of the company’s headquarters. Consequently, they gained status as a supplier and a go-to partner for the customer product development team responsible for hygiene products. They were involved even earlier in the conceptual development of new products as well as in other forms of troubleshooting related to the development of hygiene products. Also, the buyer’s share of the total output from Norbis was substantial.

4.2 Financial crisis and the raising all boats incident

In 2008, the world’s fast-moving consumer companies collectively experienced the consequences of the expanding financial crisis. Consumer demand was negatively affected worldwide, and due to financial restraints following the global financial crisis, cash flow became severely restrained. Consequently, supply chain financing became a new practice. This meant that buyers one-sidedly extended their payment terms and, in this way, by introducing a third-party financial institution that traded supplier contracts, provided themselves with more credit at the expense of suppliers. This resulted in an intensified search for cost-out options across the FMCG supply base. This and other cost reduction efforts also impacted the roster of collaboration projects planned between Norbis and FMCG. The surviving collaborative projects focused on productivity and rationalization.

4.2.1 Assembling an organizational response to the “raising all boats” incident

In the beginning of the crisis and the turn of this change, these projects benefitted from the established ways of collaboration. Both Norbis and FMCG were used to involve organizational specialists on both sides of the relationship and the new projects broadened the collaboration interface between the buyer and supplier organization. For instance, building capabilities for optimizing machine use to cut down on waste and zero faults came out of this collaboration. As the crisis continued, however, FMCG also reorganized internally and started to hand over the responsibility for managing the collaboration with suppliers exclusively to the new category management organization.

For Norbis, this change affected the scope of personal relationships with FMCG, which again hampered how expectations were received and matched across the organizational interface. The continuing replacement of managers in the customer organization and a more top-down and cost-scoped-oriented way of working, following from a tight category management control regime, started to impact the established collaboration practices. In 2006–2007, the buyer contacted Norbis, asking them to help with a specific production problem related to another supplier of polymers in the FMCG supply base. The supplier was using machinery from the same supplier as Norbis and FMCG effectively wanted Norbis to help transfer their knowledge about manufacturing technology to a newly established other supplier in a low-cost country within the hygiene product category supplier portfolio. As FMCG posed the request to Norbis, they explained to them that this was within line of their existing and strong partnership. According to the interviews we made in Norbis, FMCG uses a “raising all boats”-argument to convince Norbis. The category management team from FMCG explained that the supplier was to be considered a member of the same category supply network as themselves. They were to be seen as complementors rather than rivals since they operated in another geographical region than Norbis. Hence, Norbis should not consider transferring production-specific knowledge to an alternative supplier as a threat. Rather, it was a process of quickly ramping up the production capacity of FMCG and strengthening the overall competitiveness of FMCG vis-à-vis their global rivals, as it was phrased by representatives from FMCG category management. The concerns raised by Norbis management were quelled. As mentioned by several interviewees: “After all, we were FMCG’s preferred supplier, with several prizes to prove it.” Helping the supplier would be serving the interests and competitive strength of the entire FMCG production network. In return for their extra effort and probably also to soften the deal, FMCG was offering a volume expansion of Norbis’ existing delivery contract. This was in terms of extending the agreed production volume to be supplied by Norbis and extending the time and price agreements of the operating contract.

Norbis management were divided among themselves with respect to this request and were unsure whether and how this fitted with their existing norms of collaboration. On the one hand, they were convinced that by transferring this knowledge to the supplier, they would risk raising the capabilities of a potential future competitor. Even though this potential competitor was not operating in the same market region as themselves, this could change fast, as several other buyers of the polymer material were sourcing from this area. On the other hand, Norbis managers generally acknowledged that their close collaboration with FMCG had helped them develop their business and raise their operational standards. Without this partnership, Norbis would never have managed to grow in volume and develop its skills. Furthermore, as protagonists within Norbis management argued, the relationship with FMCG was still seen as a potential source of income and learning benefits.

4.2.2 Fading role of routinized cooperation

Given their past dealings and their dependence on their main buyer, Norbis decided in favor of maintaining the relationship. They agreed to take on the task of developing the skills and production standards of the new supplier. This decision was revisited as the relationship with FMCG became less development-oriented. As the financial crisis worsened in 2009 and onwards, FMCG started facing more financial trouble. They looked for further support from their suppliers, extending their credit line and searching for other ways to reduce operational and purchasing costs. One of the proven ways was to benchmark operations costs across the production lines of Norbis and the other suppliers and use this in increasingly tougher negotiations, where suppliers were competing over the volume offered. As predicted, the low-cost country supplier appeared as an increasingly important rival in this business relationship, but also in other buyer–supplier relationships. With their location in a low-cost context, they had access to comparatively lower labor- and capital costs than a supplier in a mature market context. Hence, the new supplier was consistently able to provide lower prices on standard products while being able to deliver the same quality. As FMCG increasingly competed for operational excellence to keep costs down, their interest and remaining resources used for partnering with suppliers also dried out. Although the program continued to exist, it was given little priority and more seen as a supplier relationship management initiative to keep up good working partnerships, that contribute to innovation and growth. Management at Norbis realized, that committing to this program had lost its allure as the buyer’s R&D department no longer took part in or backed up this type of collaboration with suppliers. What mattered most for the FMCG as the financial crisis continued was a consistent focus on further capitalization and cost-cutting.

In addition, Norbis learned that engineers from the R&D department of FMCG were applying for a patent on a technology for making visual effects on the polymer material. This technology had been developed by Norbis, but with much advice-giving from engineers from the FMCG, who often visited the production site and had free access to all parts of the production and development site. For Norbis top management, this incident led to strong personal reactions among the managers involved. It spurred discussions of both the relationship with FMCG and Norbis position vis-à-vis customers in the value creation process. It also led to a reassessment of the incident where Norbis were asked by the FMCG customer to transfer knowledge to a potential competitor. The raising all boats incident became an internal reference point among managers for not giving away critical know-how in customer relationships without established norms and procedures for returning favors. Hence, it enforced Norbis management to conduct an extensive audit of their future relationship with FMCG.

4.2.3 Reassessing relationship value and collaborative practice

Several options were open to them. In principle, Norbis could decide to continue the relationship with FMCG as it was. This was not seen as a viable route. A second option would be to terminate the relationship. A termination of the relationship was not an attractive nor a desirable option for Norbis. Hence, Norbis management decided that they had to think of new ways to develop their relationship with the FMCG while reassessing and creating other ways to build on the skills and capabilities. In 2011, they made the strategic decision to spin out Norbis Hygiene as an independent company. The rationale behind this was two-fold. First, it would be easier to keep a lid on potential financial losses in the Norbis corporation, should the collaboration with their largest customer collapse. Second, and more importantly, this was seen as a necessary part of establishing a more independent profile in the industry, utilizing their innovation ability more independently to a broader range of customers. It called for a thorough process of both rethinking interactions with the FMCG and adjust the capabilities to serve their R&D activities to exploit learning opportunities to the fullest. Norbis began to further develop and commodify their innovation capabilities so that they more easily could be used in offerings to other producers of hygiene products.

We needed to redefine the way we were thinking about innovation. We used to develop primarily for one large customer and focus all our R&D efforts on this customer. We understood that we needed to have much stronger development partnerships with our other customers as well. [Manager, Norbis Hygiene]

With respect to the first issue, Norbis decided to implement a corporate policy which was more cautious regarding interactions with FMCG. A policy was issued that instructed Norbis employees with respect to where FMCG representatives were allowed in the organization and what they were (not) to be informed about in personal interactions. Secondl, managers at Norbis gradually began to question the underlying rationale of engaging with FMCGs on further cost-cutting development activities.

Profiling Norbis as a high-end supplier of innovative offerings rather than “simply” a pipeline supplier of polymers was seen as a necessary step to escape the negative price spiral they increasingly were seeing themselves in. In essence, Norbis was aware that their capabilities were partly built through the collaboration with FMCG. However, it turned out to be less of a problem. As the buyer’s attention at the time was turning toward competing through cost cutting, they did not consider Norbis’s change in customer scope and the relationship implications coming out of establishing the Personal care division as a stand-alone firm with a focus on growing a broader customer portfolio.

When Norbis Hygiene division mobilized concerted efforts to extend their customer portfolio they offered a value proposition, based on the capabilities they had required from the relationship with FMCG. In their dialogue with potential new customers, they mentioned access to world-class capabilities, shaped from being a preferred supplier and development partner to a brand leader as part of their market offering. The sales campaign was successful, and Norbis Hygiene managed to grow a portfolio of new customers. Over the following years, Norbis Hygiene managed to grow their business, particularly in Asia. Building on their existing presence in Southeast Asia, the company strongly expanded their business into China and other transition economy countries, where a middle-class group of customers emerged that increasingly demanded disposable healthcare products. The newly acquired customers mainly consisted of novel producers and producers of private-label hygiene products for retailers and the like, who were very willing to collaborate with Norbis Hygiene.

We slowly went from one channel for all our development efforts to having partnerships with 10–15 customers. [Manager, Norbis Hygiene]

Norbis, on the other hand, were offering new customers supplier innovation and quality assurance skills that had not previously been accessible for many of these producers, but who were now catching up and conquering market shares from the incumbent firms in the healthcare product markets. For Norbis Hygiene, this meant that they had to step up their marketing efforts to communicate their offerings to potential customers, but also provide up-front improvements and offerings to customers. Even though the number of potential customers is limited, Norbis Hygiene has a core group of five to six large customers for these products and has managed to grow strongly in Asia, where disposable hygiene products have become a major growth area. In 2015, they succeeded in establishing themselves in the region and reinstalling parts of their prior business with FMCG. However, as Norbis has grown, FMCG remains an important customer but is no longer dominant or influential and Norbis do not prioritize participating in the supplier events organized by FMCG. Also, the best supplier of the year prizes from their once most important customer no longer adorn the Norbis reception area.

5. Case analysis

Following the events in the case narrative and reflecting on them from the proposed theoretical framework (Figure 1), we infer several important issues that contribute to deepening our understanding of the role of heuristics in business relationship dynamics. As shown in Figure 2 and further elaborated in the case narrative, the relationship between the buyer and the supplier dates from 2003 and the relationship quite quickly became close and mutually beneficial (see timeline in Figure 2). The calculative commitment, which relates to relationship-specific investments (Ganesan et al., 2010) between the buyer and the supplier, was jointly developed through different search and learning activities, collaboration in product development, dedicated resources and a partnership program. During this period, the supplier perceived that there was distributive fairness (Jokela and Söderman, 2017) in the relationship, as the economic outcome of activities was shared in accordance with the ongoing efforts and inputs of each party. The way the collaboration was described by the supplier also shows an ongoing appraisal of collaborative policies and procedures for communication marked by procedural fairness (Jokela and Söderman, 2017). During collaboration in the partnership program, with regular visits and meetings, strong affective commitment was built up as well; to the point where it was compared with a love affair. The affective commitment interrelates to procedural fairness and interactive fairness, where the case shows close interpersonal relations in the buyer–supplier relationship (even to the extent where it spilled over into the private sphere), as well as close collaboration and communication.

Then came the request of developing FMCG’s other supplier (a potential future competitor) as a relational event. As pointed out in the case description, Norbis management was divided among themselves with respect to this request and unsure whether this fitted with the existing norms of collaboration. However, what was retrospectively seen as an event misaligned with the relational expectations, leading to a reassessment of commitment and fairness, and therefore to reassessment of relationship value, requires a more thorough examination. A deeper analysis reveals two important issues that relate to the important role of heuristics in reaching this conclusion. First, changes in the collaboration did not follow immediately from the “raising all boats” event. In fact, there is a time span of almost a year between this event and the assembled response. Following the interpretive logics of critical realism, this suggests that a deeper layer of intermediating factors in the relationship domain are at play (Sayer, 1997). The analysis of the case indicates that established heuristics have a strong influence on understanding the delayed response and how this was eventually assessed. The breach in relational expectations probably happened already when FMCG decided to emphasize cost efficiency over innovativeness and started to reorganize their supplier relationship management policies accordingly. Heuristics on both sides of the buyer–seller interface prolonged the existing ways of collaborating beyond this event, however. In the beginning of the changes initiated by FMCG, heuristics probably also helped smoothing out the growing cognitive dissonances between the changing conditions for collaboration and the operating norms, since interactional fairness remained (although the contingencies of distributive and to some extent also procedural fairness were changing). Hence, despite the changes, the collaboration continued to exist and was supported by heuristics and emphasized by interactional fairness in personal relationships, frequent visits, etc., which undergirded the heuristics.

As the personal exits of people previously bridging the buyer-supplier relationship continued, however, it complicated maintaining these heuristics. The handover from the original team to new managers with different responsibilities did not always work and breaches in interactional fairness also drew attention toward breaches in perceived fairness related to distributional and procedural fairness. The latter breaches concerned a reinterpretation of the “raising all boats” event, but the importance of this event was probably further emphasized by other events, notably when FMCG decided to take out a patent on what Norbis considered to be the outcome of a joint development effort.

Closer scrutiny nuances the ability to pinpoint a specific event as causing the turning point. Rather than identifying the “raising all boats” as a transformative relational event (Harmeling et al., 2015) that made Norbis management reassess their existing perception of the value of the customer relationship, a closer look shows that it influenced the relationship much more gradually. Over the course of time after this event, some of Norbis’ managers started to reassess and reinterpret the fairness of the interactions with the buyer. They began to offer less benevolent interpretations of the buyer’s commitment and collaborative intentions, thereby starting to question the value of continuing the partnership. It made them search for more information regarding the doings of FMCG and how the buyer used the value gained from being in the relationship.

Second, the heuristics of middle managers’ practices across the buyer–supplier interface explain the organizational mechanisms that mediate or postpone the reassessment of commitment and fairness, as well as of relational value in the case. As the events unfold, leading to a transformation of the relationship, the employees’ understanding of the nature of this relationship changes. FMCG and Norbis are both related commercially, but individual employees are also collaborating in teams with FMCG employees on several projects related to the quality of the product, logistics, etc. Hence, Norbis employees involved in the relationship with FMCG employees are connected also on a personal level, and several individual interpretations of their relationships with FMCG exist. From the beginning, there is no shared understanding of breached relational expectations in Norbis. This unfolds only gradually, as top management in Norbis decides to restrict FMCGs access to employees and physical locations.

Financially, the request by FMCG was followed up by an offer to Norbis to expand their supplies to FMCG for a limited period. This introduced a direct reimbursement for the provision of deploying knowledge that Norbis management hitherto had seen as part of the affective commitment (Ganesan et al., 2010) as well as procedural and interactive fairness (Jokela and Söderman, 2017). In other words, there was a shift in terms of what was seen a fair procedure for reciprocal exchange. This change and how it was perceived is interesting considering the role this came to play in the trajectory of the focal relationship and other connected relationships. For Norbis, the requests and the events immediately leading up to it, the agreement, and the further deployment of competencies to train the supplier in the FMCG supply network, contributed to Norbis management’s reassessment of the value of the different activities and resources that were part of the business relationship with FMCG, including what was considered proprietary to the relationship realm and what was no longer considered unfair to commercialize and share with others. Therefore, they stopped committing specifically to this relationship and actively searched for ways to become less dependent on FMCG as a customer and build a broader customer portfolio. FMCG lost relational status in the Norbis customer portfolio as they were reclassified from being a special customer to being one among many. Reducing their calculative and affective commitment in the relationship with FMCG effectively made it possible for Norbis to re-purpose resources and invest them in relationship-building with other customers. As a result, the heuristics that underpinned and facilitated the interaction between Norbis and FMCG changed in favor of other, connected, relationships.

Summing up, the request made from FMCG to Norbis to build up the capabilities of their rival was in certain ways an event misaligned with relational expectations (Harmeling et al., 2015) with consequences over time for both calculative and affective commitment (Ganesan et al., 2010) and thus for the perception of distributive, procedural and interactive fairness (Jokela and Söderman, 2017). As our analysis has shown, however, the consequences of the customer requests and behaviors did not take effect immediately, which can be explained by the heuristics prevalent in the buyer-supplier relationship.

6. Conclusion

The paper has explored the role of heuristics in the dynamics of a buyer-supplier relationship and how they link to a reassessment of relationship commitment, fairness and value in the relationship. We have used a qualitative approach outlining relationship events that over time changed the heuristics in both the focal buyer–supplier relationship and in other, connected relationships. What first surfaced from the case analysis is the link between the established heuristics for collaboration and the cascading nature of the events in the case. Rather than finding a linear causality, the linkages between events, heuristics and perceptions of fairness and commitment are less circumscribed and more compounded. We showed how perceived fairness and relational commitment affect the reassessment of the relationship.

Based on the received theory, a customer’s unexpected behavior that breaches the supplier’s relational expectations on commitment and fairness should result in a relational turning point (Harmeling et al., 2015), or in other words, a reassessment of the relationship value, which can result in a change in behavior such as withdrawal. What we see in the case, however, unlike what Harmeling et al. (2015) discuss, is that the relational turning point is extended in time rather than an instant, dramatic shift. Hence, the relational turning point was smoother and more unfolding than one would suspect from the foundational relational turning point assumption put forward (Harmeling et al., 2015). Inspired by research on social psychology of personal relationships, these authors propose that a relational disconfirmation “dramatically shifts the relationship trajectory” (Harmeling et al., 2015, p. 43). We believe that transferring the disconfirmation effect from the interpersonal to the organizational level holds some merit, but at the same time overlooks important mediating aspects linked to how cognition unfolds in organizations and how these are supported by heuristics. Heuristics are an important part of an organization’s cooperative routines.

In addition, the study shows that interactive fairness – in particular individuals’ perception of a relationship – affects the development of the relationship; in this case, a perception of unfair behavior reduced trust in the once so-close partner. In its turn, it both restricted and reduced the “allowed” interactions between the firms. This is in line with Andersen and Kumar (2006, p. 523), who state that the “lack of personal ‘chemistry’ or negative emotions may […] terminate relationships.” Positive individual connections also lead to maintaining the relationship after the first breaches of relational expectations were experienced, however. It is thus clear that individual actors and personal relationships play an important role in buyer-supplier relationships; when it comes to ending a relationship, but also perhaps when it comes to maintaining it.

Our study contributes to the theory on business relationships and networks by combining heuristics with buyer-supplier relationships to show how a buyer’s unexpected behavior can lead to a reassessment of commitment, fairness and relationship value, thus affecting relationship dynamics. We show that heuristics have a preserving quality and that the effect of transformative events only slowly changes the perception of the value of the relationship. In this change process, the link between commitment, perceived fairness and heuristics is crucial.

6.1 Limitations, implications and future research

This paper is based on a single-case explorative study. Like all qualitative work, there are limits to the generalizability of the study. The buyer–supplier relationship studied is situated in a specific industrial context, where there are few suppliers and where the production requires heavy investments. This could also contribute to the gradual change in the relationship rather than a distinct turning point. Just as heuristics may help stabilize the relationship, the nature of the investments may have the same effect (cf. Håkansson and Waluszewski, 2002). It would therefore be relevant to complement this study with more case studies on how heuristics play out in business relationship dynamics (especially related to negative relational events) in other industrial contexts. Quantitative studies would also contribute with more general knowledge once the understanding of heuristics in business relationships and networks has increased.

There are important managerial implications from our study. The case confirms that relationships have the potential to become institutions (Ford, 1980). As commitments in relationships unfold, an increasing part of the evaluative judgements of relationships sinks into the background and fairness is assumed and acted upon. Hence, managers’ scope of reassessing relationships for their business value fades. The study shows that the stabilizing nature of heuristics, which enhances effectiveness in the buyer–supplier interaction, also creates certain inertia in business relationships. This means that important events are potentially obscured and their impacts delayed. The study suggests that managers need to frequently scrutinize the consistency of commitment, fairness and value assessment in relationships.

As mentioned above, the case suggests that despite managers agreeing on points of bifurcation, which can be identified retrospectively, their impact unfold over time rather than because of a single event. Reassessment of commitment and fairness not only changes the perception of value of the relationship but also impacts on heuristics guiding relationships across several relationships. This process warrants further investigation, especially when it comes to individual relationships and their positive and negative effects on business relationships. It would also be beneficial to study this change while it is taking place – or shortly after – to get a better grasp of how management decisions unfold during the process.

In this study, we were interested in how relational changes may affect heuristics and correspondingly, interactions in other, connected, relationships. As the main focus of the study has been on a specific buyer–supplier relationship, there is more to unveil concerning connected relationships. An additional suggestion for further studies would therefore be to focus on the business network surrounding the focal buyer–supplier relationship to see what effects changed heuristics in one relationship may have on the network (cf. Thilenius et al., 2016).

Figures

Figure 1

Conceptual model for exploring changes in heuristics in buyer–supplier relationships

Figure 2

Relationship timeline

Table 1

Overview of data collection

Period 1: 2009–2014
Type of meeting	Personal Interview	Personal interview	Executive MBA Seminar	Executive MBA Seminar
Date	May 2009	August 2009	February 2010	May 2014
Norbis Managerial Function	Marketing Communication officer	Marketing Communication officer	Marketing Communication officer	Marketing Communication officer
Duration	90 min	60 min	120 min	120 min
Data: accessed and generated	Notes Internal report Company presentation materials	Transcribed interview	Notes from Q and As, presentation slides	Notes from Q and As, presentation slides
Number	1	2	1	2

Period 2: 2019–2023
Type of meeting	Group interview	Personal Interview	Online meeting	Group interview	Online meeting	Group interview
Date	June 2019	June 2019	June 2020	April 2023	August 2023	November 2023
Norbis Managerial Function	Sales and Communication officer and Head of quality	Head of development	Sales and Communication officer	Sales and Communication officer and Head of quality	Sales and Communication Officer	Sales and communication officer and head of legal services
Duration	70 min	60 min	15 min	75 min	30 min	30 min
Data: accessed and generated	Interview recording	Interview recording	Recording and Notes	Interview recording	Notes	Notes
Number	1	1	1	2	2	1

Source(s): Authors’ own creation

Notes

1. The company name has been pseudonymized.