Status, Power, and Supply Chains: Ilitch School researcher expands our understanding of how suppliers and buyers interact

Supply chain research has traditionally focused on efficiency, analytics, and distribution networks. Less attention has historically been paid to the ways that person-to-person relationships, reputation and power dynamics affect these supply chain decisions. One Ilitch School professor is trying to change that.

Ta-Wei "Daniel" Kao, associate professor of global supply chain management at the Mike Ilitch School of Business, has been studying the relationships that build supply chains around the world.

"Supply chains are basically human relationships," said Kao. "People negotiate with other people, and there are complex social dynamics involved that interest me."

This interest drew Kao to Wayne State University and to Detroit, for its proximity to the automotive industry. The complex buyer-supplier networks involved in the automotive world serve as the perfect environment for him to conduct his research.

"The auto industry has the most interesting relationships between buyers and suppliers," said Kao. "I want to see how the suppliers get along with buyers, and how different automakers manage the power of their suppliers. There are so many different ways to actually maintainthese relationships."

Hakan Yildiz, Chair of the Department of Global Supply Chain Management, is pleased to see Kao's research, and said that "Daniel is an outstanding researcher, and we are delighted that he joined our department last year. His research significantly strengthens the Ilitch School's impact in supply chain scholarship. His most recent publications range from supplier productivity dynamics to crowdfunding network performance and network connectedness in operational systems and demonstrate rigorous, influential contributions that advance both the academic field and our school's research reputation.

Kao sees the social dimension, particularly the status and power dynamics involved in buyer-supplier relationships, as a fruitful and underexplored area for research.

"My overarching research question focuses on social relationships in supply chain dynamics, and how relationships shape economic behavior," said Kao. "Another focus is the supply chain buyer-supplier relationship, and how major customer relationships are managed by suppliers."

In consumer and supplier relationships, a smaller supplier may be bullied by a larger customer for cheaper prices and more favorable conditions at the supplier's expense. Kao says it is important to product small suppliers and their ability to operate in the marketplace.

"Some suppliers have very specific know-how, and they are the only ones who can produce those products," explained Kao. "We have to protect those treasures in the industry, because if we don't, they will be out of the market and won't be able to come back. I want to focus on how we can help the powerless suppliers fight back against the powerful customers."

Within their networks, suppliers and buyers have social status that influences their ability to compete or collaborate with other entities in their network. Status, or the respect that suppliers receive from other market participants, is influenced by many factors.

"If the supplier works with, say, the government, that supplier is respected by others because they received a contract like that," explained Kao. "Status also comes from all kinds of relationships with other suppliers, customers, governments and non-profit entities, that gives the supplier higher respect and status."

Status is one part of the equation, power is the other. Power is defined as the ability of a buyer to exert its will over a supplier. This happens when one buyer makes up an oversized percentage of the supplier's business. Kao's research discovered that power and status mix in interesting ways.

"We found that the powerful buyers, when they have higher status, will choose not to exercise power because they don't want to lose respect," said Kao. "When you exercise power to punish people, others will view you negatively and your status will fall."

When your status falls, it becomes more difficult to conduct business because people won't want to work with you.

Kao suggests some strategies that smaller suppliers can use to maintain their power in the face of a powerful buyer. They can try and bring in more business to break their dependence on a single large client. The supplier's status can play a large role here, too.

"When you work with a major customer you also gain benefits not only from the economic perspective, but also from the social status perspective," explained Kao. "When you as a supplier tell people that you work with, say, Walmart, they will think a certain way about your product because this big buyer has high standards and monitor product quality.

"This is what we consider a status transfer. The supplier gains status by working with other major customers, and they use the status they received to fight against their focal major customer."

Suppliers that increase their status by adding customers can pressure their major customers, who do not want to lose them as a supplier. They can ask for more favorable margins and schedules, especially if the major customer doesn't have a better alternative to replace those components.

Kao hopes that his research can help provide small suppliers with more options as they evaluate how to increase their status, without reducing their power.

"Supply chains are basically human relationships. It is always people who have to negotiate and who have the power," said Kao. "There are complex social dynamics here. I want to understand how some actions affect others, and how to respond to these actions to help these small supplier preserve their power and status."

-Patrick Bernas, Information Officer III

The Wayne State University Mike Ilitch School of Business prepares students for challenging and rewarding careers, advances the boundaries of scholarly and practitioner knowledge, and enhances the economic vitality of the city of Detroit, the state of Michigan and beyond through its programs, research and community engagement. Established in 1946, the business school was renamed in 2015 in recognition of a $40 million gift from Mike and Marian Ilitch. Thanks to this lead investment, the school moved to a new state-of-the-art building in the heart of the DistrictDetroit in 2018, and academic programming and collaboration with city businesses are expanding. For more information, visit ilitchbusiness.wayne.edu.