Trust Building in Supply Chains

Abstract

Holistic supply chain collaboration has appeared to be difficult to implement in strategic alliances due to managers’ lack of understanding the dynamics of trust-building. Too much reliance on technology and too little understanding of the nature of collaborative trust have led to a situation where strategic alliances often fail to thrive. This lack of awareness can be additionally observed in the supply chain literature: the concept of trust is covered without a profound scientific accuracy or clarity. In fact, views on trust are conflicting heavily even within the supply chain discipline. “Trust may be the most overused and abused word in the alliance lexicon.” (Fawcett et al. 2012).

This thesis aims to fix this gap of knowledge; it establishes a holistic model of trust-building and studies the phenomenon from the perspective of several different disciplines such as cognitive science, sociology, microeconomics and psychology to build a profound background for the topic. The aim is to merge the supply chain use of the concept ‘trust’ with the mainstream of its meaning in other disciplines such as in cognitive science.

The factors resulting in trust are additionally studied with an empirical questionnaire (n=220) for Finnish logistics experts. The results suggest that trust building in supply chains is explained by the knowledge-based theory of trust rather than the calculus-based theory. Neither asset specific investments nor contracting seem to have a high explanatory power for explaining trust in supply chain context. However, the time spent in a particular supply chain collaboration, the efficient use of tacit knowledge, extensive information sharing, partner’s reputation and the efficiency & seamlessness of the collaboration explain the existence of trust in supply chain collaboration. The calculus-based view on trust with its emphasis on transaction cost economics (TCE) is, therefore, an outdated view on supply chain management.

Additionally, trust can be seen as a capital built on the norm of reciprocity and cooperative interaction. Trust is more easily lost than formed since the reciprocity norm punishes heavily those who exploit their trustors. Trust capital is created in a temporal context and accumulated through an iterative process, which takes time and requires the parties to learn about each other, in other words, to gather knowledge. A higher amount of trust capital allows people to trade and negotiate better terms in the context of commerce and trade.

These results imply that trust-building in supply chains should be supported by corporate level policies, which encourage the creation of interpersonal relationships and collective learning between organizations. This requires trust. The findings suggest that the formation and use of highly complex tacit knowledge in supply chains allow the companies to form sustainable competitive advantages. Forming affinity groups provides an efficient way to make supply chains flourish through the accumulation of tacit knowledge and thus to increase the innovation capabilities and competitive advantages of the supply chain alliances.