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Building supplier relationships and becoming more market oriented have similar building blocks and have similar effects. Strong supplier relationships tend to impact the firm's performance, in part, because the firm can respond to customer needs in a more timely fashion. Supplier relationships tend to be stronger in firms where there is cross-functional sharing of supplier and customer information. Market orientation is an organizational culture that focuses the company on generating market information, cross-functionally sharing that market information, and rapidly responding to that market information to positively impact the performance of the firm. This study explored whether the positive effects of strong supplier relationships are enhanced in market-oriented firms. Results support the notion that supplier relationships are one way of leveraging a firm's market orientation through improved customer responsiveness. Cross-functional sharing of information appears to be the link that ties market orientation and stronger supplier relationships together.

Effective supply chain management (SCM) can improve a firm's performance through several means including building strong supplier relationships that enhance a firm's ability to respond to its customers more effectively. Developing a stronger market orientation can improve a firm's performance because the firm is focusing its efforts on responding and adapting to its market's needs more effectively than its competitors are adapting to the market's needs. Recently, researchers have begun to examine the linkages between market orientation and certain aspects of SCM [1], [2] and [3]. The current study considers the possible synergies created by firms with a strong market orientation and effective SCM. The concern is whether firms can capitalize on a strong market orientation through strong supplier relationships. Specifically, the possibility that SCM effectiveness can be enhanced in firms with a strong market orientation and that SCM may be one way to leverage a well-developed market orientation to improve performance was the focus of this research. The foundation for a theoretical model is described by first discussing how a firm creates competitive advantages through supplier relationships and then how market orientation works to affect the performance of the firm. The common elements between these two processes are explored to develop a model that suggests translating a strong supplier orientation into strong supplier relationships is one way to enhance the effect of a strong market orientation on performance. Using results from a survey, several research propositions are addressed regarding the overlapping role of supplier relationships and market orientation in affecting performance. Fig. 1 displays the proposed connections between elements of market orientation and strength of supplier relationships.

This study explored the possible synergies between supplier relationships and market orientation and found support for a connection between these two processes of a business. Results indicated that firms with a strong market orientation, in which cross-functional sharing plays a big role, were able to develop strong supplier relationships that in turn were able to take advantage of the firm's market orientation to enhance the performance of the firm. In part, stronger supplier relationships appeared to allow firms with a strong market orientation to respond faster to their customers' problems and changing needs. At the same time, firms with stronger market orientations appeared to have stronger supplier relationships, in part, because of a willingness to share market information cross-functionally. The previous literature on market orientation and the literature on supplier relationships suggest that cross-functional sharing of information is a key variable in both constructs. Our data confirm this. For all four measures of performance, cross-functional sharing of information mediated almost all of the effects of information on performance, responsiveness to customers' needs and competitor actions, and strength of supplier relationships. For example, for profit performance ratings, customer-oriented information was mediated by cross-functional sharing of information. For customer loyalty, supplier- and customer-oriented information were both mediated by cross-functional sharing of information, and for sales growth and relative sales growth, customer-oriented information was mediated by cross-functional sharing of information. Proposition 1 stated that stronger supplier relationships would be directly related to higher performance of the firm. This proposition was supported for two of the four measures of performance. Strength of supplier relationship was directly related to profit and customer loyalty measures of performance. Proposition 1 also stated that stronger supplier relationships would be directly related to higher levels of responsiveness to customers and responsiveness to competitor actions. Support for this aspect of Proposition 1 was also found. Strength of supplier relationship was significantly related to responsiveness to competitors' price changes and responsiveness to customers' needs. Responsiveness to competitors' changes in campaign tactics were not predicted by strength of supplier relationships. Proposition 2 stated that cross-functional sharing of information would be directly related to strength of supplier relationships and that supplier and customer information orientations would affect strength of supplier relationships through the cross-functional sharing of information. This proposition was supported. Cross-functional sharing of information was directly related to strength of supplier relationships. Firms that share information cross-functionally tend to build stronger supplier relationships. In addition, the type of information the firm collects mattered in this relationship. Customer-oriented information was indirectly, but significantly related to strength of supplier relationship through cross-functional sharing of information. Supplier-oriented information was in-part directly related to strength of supplier relationship and in-part indirectly related to strength of supplier relationship through cross-functional sharing of information. This suggests that customer and supplier-oriented information help to build strong supplier relationships because different functional areas of the firm are given market information, can see the need for strong supplier relationships based on that market information, and can act on that information to build those relationships. Proposition 3 predicted that responsiveness to customer needs and competitor actions would be directly related to performance of the firm. Proposition 3 was partially supported. Responsiveness to customers' needs was directly related to profit performance and customer loyalty, supporting Proposition 3. Responsiveness to competitors' price and campaign changes were not related to any of the four performance outcome measures. Proposition 4 focused on the relationships between the elements of market orientation, predicting that customer and competitor information would affect responsiveness to customer needs and competitor actions indirectly through cross-functional sharing, and that cross-functional sharing of information would affect performance through responsiveness of the firm. Results of the analyses partially supported the predicted relationships in Proposition 4. Sharing information cross-functionally was directly related to increases in responsiveness to customer needs and indirectly related to responsiveness to competitor price changes. Customer-oriented information was significantly related to responsiveness to customer needs through cross-functional sharing of information. That is, companies with more customer-oriented information tended to be more responsive to their customers because they tended to share market-related information cross-functionally. Cross-functional information sharing was indirectly related to all four measures of performance through responsiveness of the firm to market information. This would appear to support conclusions from previous research that market orientation has a positive impact on performance. In particular, cross-functional sharing of information appears to be an effective means for improving the performance for the firm because it allows firms to respond to customers' problems and needs better than firms that have little cross-functional sharing of information. Cross-functional sharing of information also appeared to be indirectly related to responsiveness to customer needs at least partially through stronger supplier relationships, supporting Proposition 5. This would indicate that sharing information cross-functionally appears to have helped firms be more responsive to their customers in part because supplier relationships were stronger, which probably allowed those firms to adapt to their customers' needs more readily. Although none of the three information orientations were related to responsiveness to competitor price changes, cross-functional sharing of information was significantly related to responsiveness to competitor price changes. This effect of cross-functional sharing of information was mediated by strength of supplier relationships, further supporting Proposition 5. This suggests that sharing market information cross-functionally can lead to a faster response to competitors' price changes because firms are able to adapt to these changes through their relationships with suppliers. Proposition 6 stated that in addition to being directly related to performance, strength of supplier relationships will be indirectly related to performance through responsiveness to customer needs and competitor actions. Results support this proposition. In addition to being directly related to profit and customer loyalty, strength of supplier relationship had an indirect effect on profit and customer loyalty measures of performance through responsiveness to customers. This combination of the effects of strength of supplier relationships supports the notion that supplier relationships can affect performance in two ways. Stronger supplier relationships affect profit and customer loyalty performance directly, perhaps through more efficient SCM. Stronger supplier relationships also affect profit and customer loyalty indirectly through improved responsiveness to customer needs. Strength of supplier relationships partially mediated the effects of cross-functional sharing of information on responsiveness, and the effect of strength of supplier relationship on performance was itself partially mediated by responsiveness to customers, supporting the idea that effective supplier relationships are one way to enhance the effects of a firm's market orientation on performance. Although the propositions regarding the basic premise of this study were supported, there were some variations in the patterns of relationships that bear mentioning and suggest areas for future research. First, competitor-oriented information appeared to be directly related to profit performance without the mediating influence of cross-functional sharing of information, supplier relationships or responsiveness to customers or competitors. This may indicate that for some firms, competitor-oriented information is used in ways outside of the market orientation process (e.g., benchmarking for productivity, technology, etc.) that may affect the profit performance of firms. Exploring how variations in competitor-oriented information is used in firms and how this affects performance could be an issue for future research. Second, strength of supplier relationship was not related to either measure of sales growth. This may suggest that the value of strengthening a supplier relationship is founded in its focus on building customer loyalty and profitability rather than sales growth. Conversely, this result may indicate that sales growth for this sample of firms may come from the pursuit of new markets or new products. The pursuit of new markets and new products might benefit from strong supplier relationships, but the path may be more complex than what was captured in this dataset. Third, responsiveness to competitors' price changes and responsiveness to competitors' marketing campaigns were not related to any of the four measures of performance. The market orientation literature suggests that responsiveness to competitors is necessary (for example, when competitors have targeted the company's customers with a marketing campaign) to protect a company's current customer base. On the other hand, Balakrishnan [22] found that competitor orientation was not related to customer loyalty. Additionally, Armstrong and Collopy [40] report data indicating that a competitor orientation may actually produce lower levels of performance if the competitor orientation becomes the sole focus of the firm, at the expense of a long-term profit orientation. They also report that approximately 40% of their subjects adopted an extreme competitor orientation, a rate similar to what has been found in other studies of game theory (see, for example, Ref. [45]). It may be that some firms in the current sample may have been much more competitor oriented in the Armstrong and Collopy sense than others. A lack of relationship between responsiveness to competitors and performance might be expected if some firms in this sample, who were high on responsiveness to competitors, were motivated to hurt competitors at the expense of long-term profits, while other firms were not motivated to “go after” competitors but were still responsive to competitors' actions. An interesting issue to explore is how the motivation for defensive responses to competitors' actions are related to the performance of firms and whether the motivation factor would clarify the role of supplier relationships in relation to competitor responsiveness. Finally, one potential weakness of cross-sectional surveys is that social desirability may be driving the results, such that firms want to appear to be doing everything correctly and so respond positively to all ratings. Such a demand artifact does not appear to be operating in the current study for two reasons. First, the means and standard deviations presented in Table 1 suggest that there was a wide variety of responses across the different variables of interest and that respondents, on average, were responding in the middle of the scales. Second, responsiveness to competitor price changes and competitor campaigns were not highly correlated with other variables, and sales growth and relative sales growth were not highly correlated with other variables. If respondents were driven by social desirability, these correlations would be expected to be high as well, suggesting that a desire to “look good” was not driving responses to the questionnaire.