Aggie Howland, 2nd year MBA student in the Center for Brand & Product Management, sat down with Jan B. Heide to discuss his research on distribution and supply chain relationships and how these B2B relationships contribute to firms’ success. Jan is the Irwin Maier Professor of Business at the Wisconsin School of Business. His primary teaching and research interests are distribution systems, strategic partnerships, and marketing strategy.
Aggie: Your research on the different kinds of distribution arrangements, supply chain relationships and interfirm alliances and how these B2B relationships contribute to a firms’ success is fascinating. How did you come about this subject as a black box that needed to be analyzed?
Jan: I started looking at this area of marketing while determining the subject of my dissertation, and what prompted my interest was what was going on in the automotive industry at the time. U.S. players were getting pummeled by Japanese counterparts, whose real competitive advantage surrounded their supply chains and supplier relationships. In the U.S., Ford and GM were used to managing suppliers by pitting one against the other, squeezing them on price and not engaging in long-term contracts. In contrast, Toyota and other Japanese suppliers had few suppliers with whom they engaged in long-term contracts and relationships. This in turn gave suppliers an incentive to invest in the relationship and Toyota reaped the benefits in terms of product quality and supply chain efficiency.
My research sought to understand when these partnerships were worthwhile, when they weren’t and when firms should consider a ‘hybrid model’. Transaction cost economics, which essentially tries to predict when a firm should outsource a transaction and when it should provide it in-house, served as a base for my research.
A: What key factors determine when a firm would want to invest heavily in building strong marketing partnerships? When might a firm be able to forgo that investment?
J: It’s very situation-based, but two situations I found this investment to be worthwhile are when 1) a firm needs to adapt quickly or 2) they require specialized investments.
If a firm is dealing with a turbulent market where things are changing rapidly, they are more successful with a strong, close supplier relationship that permits them to make quick adaptations than with an ‘arms-length’ market relationship.
Moreover, if a firm must invest substantially in their suppliers to ensure effectiveness, it is a smart idea to keep those relationships close and thereby safeguard that investment.
A: What firms, outside of the auto industry, do you find manage their B2B relationships just as well as their consumer relationships?
J: One company I admire is Calyx Flowers who has managed to build significant relationships with growers of their flowers. These suppliers not only grow and pack the flowers, but are committed to producing expensive and exotic varietals, providing Calyx a strong differentiator. Calyx and its growers have made mutual investments in each other, which serves their respective businesses well.
Another great example is Zara. They’ve done a tremendous job at streamlining their supply chain and getting things to market quickly, from design to launch. They do own their stores and suppliers, which raises the question of if they could be as successful if they crafted partnerships to mimic their ownership of stores and suppliers. I don’t know the exact answer – but I do think there is something unique about owning these systems that you cannot exactly duplicate with partnerships.
A: You’ve been applauded for your willing- and able-ness to go deep into one area of research instead of following new fads or trends. Why do you find this so important?
J: Marketing literature is inherently fad-centric and it’s easy to get caught up. However, I think it’s essential to focus on what will be timeless. What I’m doing is studying how to manage relationships – with value chain partners and consumers alike – and I don’t think that will ever go out of style.
A: Lastly, many alumni and current students alike are reading this blog post because you are a UW-professor favorite. If current or former students take one message from you today, what would that be?
J: This is easy – keep reading. Get a subscription to marketing journals or HBR and if all else fails, email me for recommendations. You will never be at a loss if you keep learning.