Academic Article- Inter-organizational Studies - The Influence of Credibility on Satisfaction with Supplier Performance in the Inter-Organizational Relationship

Moon, Chul Woo. "The Influence of Credibility on Satisfaction With Supplier Performance In The Inter-Organizational Relationship." International Business & Econonmics Research Journal. 10.9 (2011): 47-57. Web. 18 Jun. 2012. <http://journals.cluteonline.com/index.php/IBER/article/view/5626>.

Keywords: Inter-organizational Trust, Organizational Credibility, Supplier Relationship, Buyer-Supplier Relationship, Supplier Performance

In this article, Dr. Chul Woo Moon explores the retailer - supplier relationship (as it happens within inter-organizational strategies) and how volatile business or economic environments affect the perceived supplier performance from the point of view of the retailer.  The purpose of this study is to determine if the level of trust that a retailer feels with a supplier will in any way affect his satisfaction with his supplier in environments that are volatile (Moon, p.47).

Many times, retailers can't foresee if their suppliers will be able to supply the quantity of necessary products due to outside volatilities, and they want to know what to expect in their suppliers' performance if there is environmental uncertainty. Dr. Moon poses this question: "What levels of performance could be expected in volatile environments?" (Moon, p. 47).

Dr. Moon proposes that inter-organizational credibility may be a very important factor in business to business relationships and in satisfaction with exchange partners in quickly changing business environments.  His research advances this proposition and tries to discover how retailers who face volatile environments can retain the current levels of supplier performance.  He uses previous research which shows that it is beneficial to have supplier credibility to be able to exchange important information cooperatively, to reduce the costs of negotiating with suppliers, and to discuss the needs of both retailers and suppliers to be able to increase performance. Although other studies have investigated the effect of credibility on inter-organizational performance, this study tries to discover how much of an impact retailer credibility has on the perceived supplier performance in different levels of environmental volatility (Moon, p.48). Dr. Moon draws from theories and backgrounds of credibility, environmental volatility, and satisfaction. He forms his hypotheses from these. The theories involved the idea of vulnerability. Will the retailer suffer if he doesn't get his order in a timely manner? What if the supplies, prices, or environment are unstable and the supplier has asymmetrical information to which he can be opportunistic and have the retailer at a disadvantage (Moon, p.48)? Dr. Moon's hypotheses are:

(1) When retailer's credibility in its supplier is low, as the retailer's perception of environmental volatility increases, the retailer's satisfaction with the supplier performance decreases.

(2) When a retailer's credibility in its supplier is high, there is no relationship between a retailer's perceived environmental volatility and its satisfaction with the supplier's performance.(Moon, p. 49)

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After collecting data from randomly selected respondents and allowing for non-response bias, measuring developments in two stages, testing the validity, and using control variables, the findings were as follows:

Inter-organizational credibility is a critical factor for retailers that should increase performance in volatile environments (Moon, p.54).

In addition, retailers' perception of supplier performance has a negative connection with environmental volatility if they have low credibility in their supplier. If they have a high credibility, it doesn't lessen the retailers' satisfaction with their supplier even if the environment is volatile.

There are implications for this research. One finding is that if the retailers find themselves in a volatile environment, they need to spend time and effort in building a good, close relationship with their less than credible supplier to avoid information difficulties, such as asymmetric information which can lead to opportunism, and to improve transaction costs and increase buying performance efficiency (Moon, p.54).  Another finding is in the governance choices (market or hierarchal) between the two exchange parties. Credibility plays a role in these choices. See this link for an explanation of these two (and other) governance choices:

 http://apps.develebridge.net/amap/index.php/Types_of_Value_Chain_Governance

There are implications from this research for managers. If there is a high degree of credibility, the manager's satisfaction with the supplier will be the same, no matter if the prices change or there are other volatilities in the environment, because he trusts the supplier. He can find ways to reduce the volatility because he can believe in his supplier. His supplier also benefits from the credibility and trust. Both parties can realize increase in performance and decrease in transaction costs. If there is low credibility with the supplier's performance in volatile environments, managers see less trust and satisfaction in their supplier. Again they need to find ways to reduce the volatility, perhaps through information-sharing and collaboration across their organizations, and they need to work to create a good relationship with the supplier (Moon, p.54). By building inter-organizational credibility, increased performance can be realized even in volatile environments, and by working together in a close business-to-business relationship, competitive advantages may be attained for both parties.