Buyer-seller relationships in manufacturing organisation

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Reference no: EM132289189

There are three stages of trust in relationships; calculus-based trust, knowledge-based trust and identification-based trust (Lewicki and Bunker, 1995):

1. Calculus-based trust Calculus-based trust is the most basic level of trust. It is based on the belief that the other party will be deterred from violating trust as the penalties for doing so will be high. Penalties may include financial costs or reputational risks. This is the easiest type of trust to establish as it is covered by a contract and does not need any other relational commitment. Calculus-based trust in found in all purchasing contracts’ terms and conditions.

2. Knowledge-based trust Knowledge-based trust relies on information rather than deterrence. Trust is established through knowledge of how the other person will act and how well those involved in the relationship can understand each other’s attitudes and values. The better the parties know each other, the more accurately they can predict each other’s behaviours. This is important for long-term buyer-seller relationships, for as long as the supplier continues to deliver predictable service, tryst endures. However, for new suppliers it is hard to develop knowledge-based trust. Buyers can look for supplier references and brand strength to try to build a foundation for knowledge-based trust.

3. Identification-based trust Identification-based trust is the highest level of trust and the hardest to achieve in buyerseller relationships. It is based on a sense of identification, or oneness with the other party, stemming from an alignment and internalisation of joint goals and shared values. There is a high level of mutual understanding between organisations and they act as partners to improve business performance and outcomes for both parties. Establishing identification-based trust is difficult and requires a period of time to establish. Interestingly identification-based trust commonly develops during a period of crisis when partners are forced to act mutually to solve an immediate problem, as opposed to focusing on individual gain.

Question: How those the three levels of trust potentially impact buyer-seller relationships in a manufacturing organisation.

Reference no: EM132289189

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