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Just-In-Time Exchange Relationships in Industrial MarketsAuthor(s): Gary L. Frazier, Robert E. Spekman, Charles R. O'NealSource: The Journal of Marketing, Vol. 52, No. 4 (Oct., 1988), pp. 52-67Published by: American Marketing AssociationStable URL: http://www.jstor.org/stable/1251633 .Accessed: 19/04/2011 20:46

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Gary L. Frazier, Robert E. Spekman, & Charles R. O'Neal

Just-In-TmexchangeRelationshipsnIndustrial Markets

A new form of relational exchange, commonly referred to as the "just-in-time" (JIT) exchange relation-ship, has been adopted and implemented by many original equipment manufacturers (OEMs) and sup-pliers of component parts-materials during the past several years. Though the "exchange relationship"is at the core of the marketing discipline, JIT exchanges have received little attention in the marketingliterature. The authors attempt to expand understanding of (1) how JIT exchanges compare with otherforms of exchange between suppliers of component parts-materials and OEMs, (2) what conditions aremost conducive to the initiation of JIT exchanges, and (3) what key factors are likely to influence thesuccess or failure of initiated JIT exchanges.

M OST marketing scholars seem to agree that the"exchange relationship" is the core phenome-non for study in the marketing discipline (cf. Alderson1965; Bagozzi 1975; Dwyer, Schurr, and Oh 1987;Hunt 1983; Kotler 1972). Bagozzi (1975) goes so faras to argue that marketing theory is concerned pri-marily with two main questions, both relating to ex-

change relationships: (1) Why do people and organi-zations engage in exchange relationships?and (2) Howare exchanges created, resolved, or avoided? How-ever, relatively few studies in the marketing literaturehave directly addressed these critical questions. AsBagozzi (1979, p. 434) states, "We know very littleabout exchange behavior and lack a formal concep-tualization of its parts."One key "part" or area of exchange behavior ofimportance to the marketing discipline is the exchangeof component parts-materials between suppliers andoriginal equipment manufacturers (OEMs) in indus-

Gary .FrazierndRobert.SpekmanreAssociaterofessorsf Mar-keting, chool f Business dministration,niversityf Southern al-ifornia. harles .O'Neals ProfessorfMarketing,chool f BusinessAdministration,niversityf Evansville.heauthorshankheEditor,three nonymousM eviewers,ndShelbyD.Huntor heir ommentson drafts f the article.

trial markets. This area of exchange has received littleattention in the past. As Kotler (1984) points out, con-ceptual and empirical research in marketing has fo-cused mainly on finished products ratherthan on goodsthat go into finished products.Two forms of interfirm exchange relationship havebeen traditional between suppliers of component parts-materials and OEMs, "market exchanges" and "re-lational exchanges." Market exchanges occur whenthe OEM primarilybuys on price, uses multiple sourcesof supply, and tends to switch suppliers frequently overtime. Relational exchanges, well described by Dwyer,Schurr, and Oh (1987), occur when the OEM andsupplier develop a relationship with more of a long-term orientation(also see Jackson 1985; Shapiro 1985;Spekman and Johnston 1986). The OEM still may usemultiple sources of supply, but a relational exchangeis less price driven and is based on a greater recog-nition of mutual commitment between trading part-ners than is found in a market exchange. One othertraditional option for the OEM is to make the com-ponent part-material rather than purchase it (i.e., a"hierarchical exchange").

During the past several years, a new form of re-lational exchange has developed between suppliers ofcomponent parts-materials and OEMs, commonly re-ferred to as the "just-in-time" (JIT) exchange rela-

52 / Journalof Marketing,October1988 Journal of MarketingVol. 52 (October 1988), 52-67.


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tionship. Such an exchange requiresthe supplier toproduce and deliver to the OEM precisely the nec-essary units in the necessary quantitiesat the neces-sary time, with the objective that productsproducedby the supplierconform to performance pecificationsevery time (cf. Hayes 1981; Wantuck1982). The JITexchange relationshiprequiresthe integrationof theengineering-purchasing-production-materialsanage-ment-marketing ystems of the supplierand OEM topromote he efficientflow of parts-materialscf. Hahn,Pinto, andBragg 1983). JITexchanges nitiallygainedprominence n this country n the automobile ndustry.Today, a numberof majorfirms across a variety ofindustries (e.g., Boeing, Ford, Harley Davidson,Hewlett Packard, IBM, Xerox) have assigned toppriorityto the establishmentand maintenanceof JITexchanges (cf. Bertrand1986).The JIT exchange concept has received consider-able attention n the purchasing,operations,and ma-terialsmanagementiteraturescf. Bartholomew1984;Hahn,Pinto, andBragg 1983;Hall 1983; Manoocheri1984; Schonberger 1982a; Schonbergerand Ansari1984). It has been conspicuouslyabsentfromthemar-ketingliterature.This lack of attentionappearsdue tomisconceptionsin the marketing ield aboutwhat theadoption and implementationof JIT exchange rela-tionships entail (cf. Schonberger1982a, p. 16). Ob-viously, the marketingfunction is influenced greatlyby any change in interfirmexchange relationships,whetherlogistics-productioncenteredor not.The generalpurposeof this article s to expandourunderstanding f the exchange relationshipsbetweensuppliersof componentparts-materials nd OEMs inindustrialmarkets. Toward this end, the article hasthree specific objectives. One is to clarify the differ-ences between market exchanges, relational ex-changesas they have been conductedtraditionallybe-tween suppliersof parts-materials ndOEMs, and JITexchanges.The second objective is to develop a conceptualframework ocusing on constructsand processes thathelp to explainlevels of interest n andpreference orJITexchangesby OEMs. We examinethe questionofwhy organizationsengage in a specific form of ex-change relationship,which has received scant atten-tion in the marketingiterature.Bagozzi (1979) arguesthat explaining variation in forms or types of ex-change behavioris among the more important ssuesfor marketingresearchers o address.The third objective of the article is to develop aframeworkcentering on factors posited to influencethe success-failureof initiatedJITexchange relation-ships. We examinethe questionof how exchangesaremaintained, resolved, or avoided (Bagozzi 1979).Elementsof thepoliticaleconomiesframeworkAchrol,Reve, and Ster 1983; Stem and Reve 1980), the re-

source-dependence ramework(Pfeffer and Salancik1978), the transaction cost analysis framework(Williamson 1975, 1985), the interorganizationalx-change framework(Frazier1983), and the relationalexchange framework(Dwyer, Schurr,and Oh 1987)are instrumentaln the developmentof the conceptualframeworks.

The JIT Exchange RelationshipThe fundamentalobjective of the JIT exchange rela-tionship is to eliminate waste of all kinds from theproductionand delivery systems of the supplierandOEMorganizations.Wasteis definedas anythingotherthan the minimum amount of equipment, materials,parts, and workersthat is absolutelyessential to pro-duction(Shingo 1985). Exactnessis a criticalconsid-erationbecausethe JITexchange, in its extremeform,does not toleratevariances.Shipping the exact quantitiesof the part or ma-terialorderedand schedulingshipmentson a precisetimetableas partsor materials reneeded n the OEM'sproductionprocess are two fundamentalelements ofa JITsystem.1Wasteis minimizedfurtherby shippingpartsor materialsof perfectquality(i.e., that conformto performancespecifications). Perfect quality helpsto (1) ensurethatthe OEM's productionprocessrunsuninterrupted nd (2) alleviate the need for incominginspectionby the OEM.Anotherkey elementof a JITexchangeis that thepart-materials intendedto be designedin a creative,joint effort between the supplierand OEM. Contin-uous quality improvementsover the durationof therelationshipare sought. Joint design efforts can lead

to greatersimplicity and standardization f parts ormaterials, thus helping the firms to achieve shortermachinesetuptimes, smallerproductionot sizes, andsmaller nventoriesat all stagesof the purchasing-pro-duction-deliverysequence (Hay 1984; Shingo 1985).Waste is reducedfurtheras a result.2Finally, the emphasis on per-unitprice from thesupplier s supplantedn a JITexchangeby the notionof "totalcost of ownership"and the arrayof value-added services provided by the supplier. The OEM

'Because the shipment quantity and delivery scheduling must be ex-actly coordinated if the JIT exchange is to work, the supplier's phys-ical proximity to the OEM is a major issue. Many OEMs establish a"boundary" within which potential suppliers or their plants-ware-houses must be located. In some instances, proximity can be gainedthrough computer networks and related information technologies (cf.Cash and Konsynski 1985).2Keeping lot sizes as small as possible also helps to level demandratesfor partsand materials,smooth capacityrequirements,and shortenlead times. As a result, it becomes feasible for the OEM to fill in-dividual customer orders for several different models from the pro-duction line ratherthan from inventories. The potential impact on cus-tomer service levels is obvious.

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begins to recognize that per-unit price is less impor-tant thanthe costs associatedwith inspectionand re-inspection, handling, warehousing, inventory, scrap,and rework.If total costs are lowered because of wastereduction, the OEM can be more price competitivewith its end-product.However, reducingthe per-unitprice of the supplier's part-material ver time is stilla prominentgoal of a JITexchange;cost informationis intended to be sharedopenly between the firms.The adoptionandimplementationf an "ideal"JITrelationshipareimpossibleto achievein a shortperiodof time, if ever. There is no exact standard o meetin implementing JITexchangerelationship, ther hancontinuousprogresstoward the ultimateobjectivesofone-at-a-timedelivery (i.e., the amountof the part-materialrequiredfor one productionrun), perfectlysynchronizedand continuous productflows, perfectqualityof incomingparts-materialshat are simpleandstandardizedn theirdesign,and shortproductionuns.3

Comparisons of InterfirmExchange RelationshipsIn this sectionwe highlightmajordifferences betweenmarket xchanges,traditionalelational xchanges,andJITexchanges(see Table 1). This discussion lays thefoundation or the conceptual rameworks ocusingon(1) the conditionsthat appearto be conducive to theestablishmentof JITexchangesand(2) the factors thatare likely to influence the success or failure of initi-ated JITexchanges.As suggested in Table 1, marketexchanges tendto be viewed as "discretetransactions"with the par-ties havinglittle commitment o therelationship.Pricedrives the negotiation process and the OEM treatsqualifiedsuppliers,as well as theirparts-materials, shomogeneous Amesand Hlavacek1984;Kotler1984).The OEM uses several sourcesof supplyfor the part-materialand the functionalinterdependencebetweenthe OEM and any given supplieris very low. There-fore, from the OEM'spointof view, few risksor costsareassociatedwith switchingfromone supplier o an-other. The supplierknows all too well thatno futurebusiness is guaranteedand that its share of presentbusinesscanbe usedby the OEMas a bargaining ointfor any follow-on sales (cf. Jackson 1985).The informationexchanged in marketexchangesnormallyis limited to issues directly germaneto thepurchaseagreement.In addition, communicationbe-

3A true JIT exchange relationship is adopted and implemented onlywhen all of the above features are a part of it. Many firms mislabelthe systems they establish as JIT systems when only a few aspects ofJIT (e.g., blanket contracts, improved delivery schedules, direct orderentry) are actually being adopted and implemented (cf. Purchasing1986a, b).

tween the supplierandthe OEMtends to be relativelyformal and infrequent. Any communications,cross-functional ties, and evaluationprocesses are limitedto areasdirectlyrelatedto the deliverysystem andtheterms and conditions of the agreement. Such ex-change characteristicsencourage each party to ap-proachthe other in a self-serving way. There is littlesense of joint gains and mutual benefits in the typicalmarket exchange relationship(Stem and El-Ansary1988).As shown in Table 1, relational exchanges aresomewhere between marketexchanges and JIT ex-changes in termsof characteristicsof exchange. Sup-plierswith whom OEMs are interested n establishingrelational exchanges have somehow differentiatedthemselvesfromcompetitors Dwyer, Schurr,and Oh1987). For example, Salmond(1987) arguesthat re-lationalexchanges tend to develop when the supplieroffers customized-differentiatedomponentparts-ma-terials to the OEM. This differentiationprovides theincentives for an exchange relationship that has amoderateto long-term time horizon and a focus onthe coreproductandsome associatedvalue-addedser-vices rather than on just price. Shared values andcompatibilityof goals are more importantbecause ofthe higher level of functionalinterdependencen re-lational exchanges than in market exchanges. Stra-tegic alliances between OEMs and suppliersbegin tomake sense under these conditions.The OEM and the suppliertend to communicatemore frequentlywith each other in a relational ex-changethan n a market xchange,even when theOEMuses multiplesourcesof supply for the part-material.Some effortstowardcost containment,value analysis,andjoint designs are apparent n many relationalex-changes(Dwyer, Schurr,and Oh 1987). Withinmanyrelationalexchanges, OEMs work closely with sup-pliers to implementstatisticalprocess control proce-duresin an attempt o ensureconsistentqualityof thesuppliers' parts-materials.Because of the level ofinterdependencebetween the OEM and supplierin arelationalexchange, self-motivated behavior on thepartof either trading partnerdiminishesto some de-gree.In comparison with market and traditionalrela-tional exchanges, JIT exchanges have a longer termorientation.The focus of the JITexchange is the coreproduct(which may or may not be differentiated)andthe value-addedservices made possible throughclosecoordinationbetween the OEM and the supplieror-ganizations. Indeed, the need for close interfirmco-ordination n productdevelopment,qualityassurance,and logistics is the key featuredistinguishingJIT ex-changes from the other forms of interfirmexchangefor componentparts-materials.Hence, JITexchangesnecessitate requentcommunication etweenthe firms,

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Comparisons of Market, Relational, and TABLE 1JIT Relationships on Characteristics of ExchangeCharacteristics of Form of Exchange RelationshipExchange Market Relational JITTime horizon of Short-term Moderate to long-term Long-termexchangeFocus of exchange Price of core product Emphasis on core product, Joint emphasis on corewith some attention to product and value-addedvalue-added services servicesNumber of Few Moderate A tangled web of relationsinterorganizational across functional areaslinkagesFrequency of Low; tends to be formal Moderate; both formal and High; both formal andcommunications only informal informalNature of information Limitedto transaction Transaction and some Joint product-, production-,exchanged long-term planning and logistics-related;much long-term planningFrequency of shipments Low and irregular Moderate and regular High, and subject torevisionNumber of suppliers Many Moderate number Sole-sourcing in its idealformTransaction costs Low Moderate HighSpecialized investments Low, if any at all Moderately low Moderate to highFunctional Low and limited to Moderate and involves only Very high and extends to

interdependence delivery system a few functional areas many functional areasLevel of risk Low Moderate HighProblem-solving After the fact and reactive Largely reactive Proactive and orientedorientation toward preventioninvolving a large number of participants across manyfunctional areas. Transaction costs (i.e., the costs ofrunning a relationship; Williamson 1975) are likely tobe moderate to moderately high throughout a JIT re-lationship, especially in the beginning as the supplierand OEM adapt to a new way of conducting busi-ness.4

JIT exchanges involve at least moderate levels ofspecialized investments (Williamson 1975) in humanassets on the part of both the supplier and the OEM,as specialized design, production, and delivery poli-cies and procedures are needed to implement them.For example, the OEM's production plans, schedules,and releases must be communicated clearly and com-pletely to the supplier and at frequent intervals, as theyare essential for the supplier's own production and de-livery plans. Specialized investments in durable assetsalso are common, especially for the supplier (e.g., newplant next to the OEM plant, new warehouses, moredelivery vehicles). These specialized investments andthe high level of functional interdependence betweenthe firms lead to a relatively "high risk" exchange fromboth the OEM's and supplier's point of view, espe-

4Marketing-salespersonnel in the supplier organization often are in-volved in coordinating communications and behaviors with the OEMin a JIT relationship (cf. O'Neal 1986). Moreover, members of themarketing-sales group of the OEM also are frequently involved be-cause of their experience in interfirm dealings and the implicationsthat JIT exchanges have for marketing the OEM's end-products.

cially if the OEM uses sole-sourcing for the part-ma-terial. Usually the OEM makes a transition from mul-tiple sourcing to dual sourcing to single sourcing asthe JIT exchange is implemented (cf. Manoocheri1984).5Given the transaction costs, investments, and risksinvolved, OEMs and suppliers are likely to engage ina relatively extensive selection process before agree-ing to establish a JIT exchange. Once the JIT ex-change is implemented, the monitoring-review pro-cess is critical in a relative sense as the OEM andsupplier must understand the impact that the JIT ex-change is having on their performance levels. Theproblem-solving orientation between the OEM andsupplier in a JIT exchange ideally is based on pre-vention rather than reaction to problems as they occur.Dedication to mutually beneficial gains and a col-laborative atmosphere are necessary if the JIT ex-change is to prosper. Should "boundedrationality"and"opportunism" (John 1984; Williamson 1975) pre-vail, the costs of the JIT exchange are likely to out-weigh its benefits. If collaborative behavior predom-

5The drive to sole sourcing is perhaps the most dramatic change ininterfirm relationships in industrial markets brought about by theadoption and implementation of JIT exchanges for component parts-materials. It will most certainly influence industry structureover time.Whetheror not it leads to further ndustry concentrationand a reducedsupplier base is unclear, given that OEMs frequently look for smalllocal supplierswith which to establish JIT exchanges (cf. Hahn, Pinto,and Bragg 1983)

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inates, JIT partnerscan forge a strategic alliancewherebyboth look to the ultimate customerandjoinforces to compete in the marketplace.Such alliancesnormallyare associatedwith joint ventures and otherequity-based partnerships(see Harrigan 1983), butmanyof the statedadvantages an be achievedthroughclose, collaborativeties in a JIT exchange relation-ship. Indeed, JIT exchanges appearmore similar tohierarchicalexchanges than to traditionalrelationalexchangesbecause of the resourcescommitted o themand the way in which they are conducted.JITexchangesoften facilitatethe transferof tech-nologicalandmanagerialkillsbetween the firms, thusserving to exploit synergies and leverage each part-ner's distinct competencies. These benefits translateto competitive dvantageor theOEMthroughts abilityto offer its customershigher quality products, moreinnovative products, and lower prices (Schonberger1982b). The suppliergains a competitive advantagethrough mproved productqualityand increasedsalesover time to a stable buyer.AppropriateFormofExchange RelationshipFigure 1 is a conceptualframeworkaddressing he is-sue of when JITexchanges are most likely to be ini-

tiatedbetween suppliersof componentparts-materialsandOEMs. The frameworkconsists of two stages. Inthe "interest tage" are constructs hatareexpectedtoinfluence whether or not an OEM will consider es-tablishinga JITexchange for a partor material.Oncea moderately high level of interest is reached, the"initiation-rejectionstage" is triggered. This stagecomprisesconstructsposited to influence whether ornot the OEM's interest is translated nto a desire toinitiate a JITexchange for the part-material.Levels of the perception-orientedconstructs inFigure1 (e.g., decision-making ncertainty) re basedon the views of the dominantcoalition in the firm(cf.Bacharachand Lawler 1980). Conceptualdefinitionsof the constructsn Figure1 aregiven in AppendixA.Interest StageLevels of interestn JITexchangesdifferamongOEMswithin and across industries cf. Purchasing 1985). InFigure1, an OEM's level of interest n a JITexchange(reflectedby C5) is expected to be influencedby (1)decision-making uncertainty, (2) the firm's marketposition and aspirations, (3) part-material haracter-istics, and (4) end-productcharacteristics.Decision-making uncertainty(C4) in the OEM firm is drivenby such environmental actors as the numberandpat-

FIGUREThe Appropriate Form of Exchange Relationships for Component Parts and Materialsin Industrial Markets

r

I - - - - --i- - -Interest Stage Initiation-Rejection Stage

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tern of linkages among suppliers, OEMs, and cus-tomers, the power of competitorsand other outsideactors, the favorableness-unfavorablenessof eco-nomic conditions, and the level of environmentalchange (C1 and C2) (Achrol, Reve, and Ster 1983;Aldrich 1979; Child 1972; Duncan 1972; Pfeffer andSalancik 1978). If the level of uncertainty aced bythe OEM is low, JIT exchanges are not likely to beconsidered to any degree;currentmeans of conduct-ing business are likely to be seen as acceptableunderconditions of low uncertainty cf. Achrol, Reve, andSter 1983;Pfeffer and Salancik1978; Rogers 1983).In contrast, if moderate to high levels of uncertaintyareencountered,the OEM is likely to be open to andinterested n new ways of conductingbusiness.A dominant OEM firm whose marketposition iseroding is likely to have a keen interest in JIT ex-changes, especially if it has high aspirationsfor re-gaining its lost marketposition (C3). The interest ofsuch an OEM in JITexchangesshould be spurredalsoif a key competitor recently has adopted JIT ex-changes for some parts-materials.Competitive pres-sures often force firms to find new ways to cut costs,gain technicalsuperiority,and improveproductqual-ity (Schonberger nd Ansari1984). Similarly,an OEMmightshow keen interest n a JITexchangeif it viewsit as a way to gain a first-moveradvantageover com-petitors.If the part-materialC6) and end-product C7) aremoderately mportant o highly important o the firm,the OEM is expected to be open to new ways of ac-quiring/producingthem. Therefore, interest in JITexchanges s expectedto be higherfor suchgoods thanfor goods of lower importance.Interest evels in JITexchanges also should be relatedto the need to im-prove the price and qualitylevels of the part-materialand/or end-product;oint design efforts, technologytransfers,and waste reductioncan contributeto im-proved price and quality levels.Initiation-Rejection StageWhen interest n a JITexchangeis at least moderatelyhigh because of the factorsjust discussed, the OEMis likely to undertakea searchand evaluationprocess(C10) to assess in greaterdepththe costs and benefitsof suchanexchangerelationship.Transaction-specificinvestments (C8), transaction costs (C9), and theavailabilityof potentialJIT exchange partners C11)are consideredn the process(Williamson1975, 1985).On the basis of this evaluation,the OEMcan developan understandingof its strategic vulnerability(C12)in forming a JIT exchange. Moreover, the financialresources available to the OEM (C13) influence itsrangeof options in acquiring he part-material.Com-bined with the constructs n the intereststage of Fig-ure 1, the constructs n this second stage areexpected

to affect the OEM's decision of whetheror not to at-temptto form a JIT exchange (C14).Aside frommotivating nterest n the JITexchangeinitially, high uncertainty s expected to contribute oa desireto establish JITexchanges, at least whenmar-ket or relationalexchangesarecurrently n use. Firmsnormally attempt o achieve greaterstability-certaintywhenfaced with anuncertain uture(Vyas and Wood-side 1984; Webster and Wind 1972). One way for afirm to ensure greater stability in a threatening-un-certainenvironment s to achieve higher levels of in-terfirmcoordination(Pfeffer and Salancik 1978), asempirical results reportedby Etgar (1977) suggest.Therefore, for OEMs currently using a market ex-change or a traditional elationalexchange for a part-material, establishmentof a JIT exchange promiseshigherlevels of interfirm oordinationandgreatersta-bility.When a marketor relationalexchange is currentlyin place, the OEM is likely to resist establishing ahierarchical xchangeif faced with ahighly uncertainenvironment. Such internalexchanges are very ex-pensive to set up (e.g., acquisitionof necessaryplantand equipment)and raise the level of fixed costs in-curredby the OEM. As Buzzell (1983) and Harrigan(1983) suggest, highly volatile environmentsmay notbe conducive o vertical ntegration ecauseof the risksinvolved. JITexchangesoffer the OEMthepossibilityof a closely coordinatedrelationshipwithout the risksand burden of ownership. JIT exchanges are moreflexible than hierarchicalexchanges, and flexibilityand "looserorganizational tructures"are very desir-ablein uncertain nvironmentsAchrol,Reve, andSter1983; Dwyer andWelsh 1985; Sternand Reve 1980).When a hierarchical xchangecurrentlys used forthe part-material,he risksassociatedwith makingtheitem in-house in an uncertainmarket,especially onein which long-termeconomic conditions appearun-favorable,may encouragea switch to a JITexchange.However, the OEM may preferto maintain use of ahierarchicalexchange when faced with high uncer-taintybecause it affordsthe firm more controlin de-cision making.OEMs are likely to resist establishing JIT ex-changes if high levels of transaction-specific nvest-ments are required.Heavy investmentin specializedassets by a supplierwould expose the OEM to thepossibility of "holdup"costs based on the supplier'sopportunisticbehavior(Williamson 1975, 1985), es-peciallyunderconditionsof high uncertainty. n otherwords,the costs of switching o another upplierwouldbe so greatthatthe OEM might feel compelledto re-lent to the supplier'sdemands,even if they were un-fair. Furthermore,a high level of specialized invest-ments implies a complex exchange in which thecustomerservice requirementsare high. Hierarchicalexchangesmightbe preferredbecausethe OEMcould



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retaingreatercontrol. As a consequence, the OEM islikely to initiate JIT exchanges when levels of spe-cialized investments are moderate for both tradingpartners.However, the OEM is likely to want the supplierto make more specialized investmentsin a JIT rela-tionship than the OEM does, especially in terms ofdurable assets. In a sense, investmentin specializeddurableassets by the suppliergives the OEM a "hos-tage" to which it can refer in futuredealings with thesupplier (Williamson 1985). This investment wouldincreasethe supplier'sdependencein the relationshipandgive the OEMa power advantageEmerson1962);a firm's power reflects its potential for influence onthe decision making and behavior of another firm(Frazier 1984). Firms generally strive to achieve apower advantagein their dealings with other firms,therebyavoiding,to the extentpossible, situations hatdemandhigh levels of outsidecontrol andcompliance(Emerson1962; Pfeffer and Salancik 1978).The OEM's desire for a power advantagealso isexpected to lead to a greater likelihood of JIT ex-changes when the OEM is faced with a moderatelyconcentrated uppliermarket or the part-material. nsuch markets, the group of potential exchange part-ners is largerthan it is in concentratedmarketsandsupplierpower levels are relatively low.6Though a power advantage is likely to be pre-ferredby the OEM, it is expected to be less criticalthanthe generalcompetencyof the supplier.Thatis,being an eligible JITexchange partnermeans thatthesupplierhas the capabilityandtechnological expertiseto make theJITexchangework.ManyOEMsthathavewantedto enterJIT exchanges with certainsuppliershave been delayed by the suppliers'inability to pro-vide parts-materialsof consistent quality. Further,finding suppliers that are trustworthy appears ex-tremely mportant.As Pruitt 1981) indicates, rust i.e.,the belief that a party's word or promise is reliableand a partywill fulfill its obligationsin an exchange)is likely to be relatedstronglyto firms' desiresto co-ordinateactivities closely with one another(also seeDwyer, Schurr, and Oh 1987; Schurr and Ozanne

6Apossible exception to this argumentcan be cited. In certain cases,an OEM may align with a supplier that is larger and more powerfulthan it is. The OEM's motivation to do so appearsto be based on twointerrelated factors. First, the potential benefits of a "strategic alli-ance" with a large and powerful supplier may be worth the inherentrisks in certain instances (Porter 1985). Certain large suppliers mayoffer both a part-materialand value-added services that will make theOEM's end-product extremely attractiveto end-users. Second, a veryhigh level of trust between the OEM and the large supplier may mit-igate the risks of a power imbalance from the OEM's point of view.Extremely high levels of trust may offset potential weaknesses of anyexchange relationship (Dwyer, Schurr, and Oh 1987). The degree towhich more OEMs establish JIT exchanges with smaller (larger) andless (more) powerful suppliers is an important issue for future re-search.

1985). Finally, the JIT exchange is much stronger fthe fit between the organizations'cultures is as greatas the complementary kills and competencieswithineach organization.As Ouchi (1980) points out, highlevelsof commitment ver timepresumea sharedvaluesystembetweentradingpartners.Obviously, a JITex-changecannot be initiated f the OEMfails to identifyany eligible exchange partners.Moderate transaction costs should facilitate theinitiation of JIT exchanges. As Williamson (1975)suggests, a moderate level of transaction-specificn-vestments reduces transaction costs to a degree.Transaction osts also would be moderate f customerservice requirementsand the complexity of the ex-change were not extreme. Further,reasonablyhighlevelsof trustbetween he OEMand thesupplier houldserve to reducethe costs of runninga JIT exchange.However, the high uncertainty hat is expected to bepresent when JIT exchanges are formed is likely tocause an upwardpressureon transactioncosts.JITexchangesappear o be morelikely if the part-material and the end-product n which it is incorpo-ratedareonly moderatelymportanto the OEM.Parts-materialsthat are highly essential to the market ac-ceptance of an extremely importantend-productaremore likely to be made in-house for two main rea-sons. First,hierarchicalxchangesgive the OEMmorecontrolover the production/delivery f essentialparts-materials hando JITexchanges. Second, the depen-dence of the OEM on a JIT supplierwould be veryhigh if the supplierprovidedan essentialpart-materialfor an extremely importantend-product.As Pfefferand Salancik(1978) indicate, firms attemptto main-tain direct control over the most essential resourcesneededfor survival.Empirical esultsof Lilien(1979),Anderson(1985), andAndersonandCoughlan(1987)suggestthathierarchical xchangestendto be used forproductsthat are relatively complex and highly dif-ferentiated.

High "strategicvulnerability" an precludethe es-tablishmentof particular orms of exchange relation-ships (Emerson1962;Harrigan1983;Pfefferand Sal-ancik 1978; Porter 1985). Several of the conditionsdiscussedbeforeappear o providefor a JITexchangethat is manageablein terms of the OEM's vulnera-bility, namely moderatelevels of specialized invest-ments and transactioncosts, a high level of trust inthe supplier,andan OEMpower advantage n the ex-change.Dominantbut decliningOEMs with aspirations oregaintheir lost marketposition should desire to ini-tiateJITexchanges, which offer a way to regainmar-ketposition hroughmprovementsn end-productricesand quality. JIT exchanges appearespecially attrac-tive to OEMs in this situationthatare somewhatcon-strained n the availablefinancialresourcesandhence



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TABLE 2Propositions Relating to Interest in and the Initiation of JIT ExchangesInterest StageInterest in JIT exchanges is present when:P1: OEMs are faced with moderate to high levels of decision-making uncertainty.P2: The OEM is a dominant but declining firm with high aspirations for regaining lost market position.P3: Competitive pressures are high and the OEMmust either respond to competitor moves or gain a first-mover advantage.P4: The part-materialand end-product are of at least moderate importance to the OEMand in need ofprice-quality improvements.Initiation-RejectionStageJITexchanges are initiated when:P1: Marketor relational exchanges currently are used, the OEM'sdecision-making uncertainty is high, andeconomic conditions are somewhat constrained but still favorable.P2: Specialized investments by the OEMand the supplier are moderate; the supplier will make largerspecialized investments in durable assets than the OEM.P3: Several suppliers are viewed as eligible JIT partners for the part-material, largely on the basis of theircapability and the fact that they are smaller and less powerful than the OEM.P4: Transaction costs are moderate.P5: The part-materialand end-product are moderately important to the OEM.P6: The OEM'sstrategic vulnerability is perceived as being moderately low.P7: The OEMis a dominant but declining firm with high aspirations and is somewhat constrained in termsof available financial resources.

less able to establish hierarchical exchanges, at leastfor parts-materials of moderate importance. When ahierarchical exchange is not possible or is deemed toocostly, a JIT exchange is a logical and close alter-native.Finally, one caveat must be stressed. Just becausean OEM desires to initiate a JIT exchange does notmean that it will be able to do so, as the terms andconditions of the JIT exchange must also be accept-able to the supplier. For example, the production groupof an OEM may want to establish a JIT exchange.However, the traditional price-driven purchasing

practices used in market exchanges may still persistin the firm, impeding the establishment of a JIT ex-change with a preferred supplier.7Table 2 is an overview of the research proposi-tions suggested from the development of the intereststage and the initiation-rejection stage of Figure 1.

Implementation-ReviewChallengesfor JITExchangesEven when JIT exchanges are initiated under appro-priate conditions, their success is not guaranteed be-

7One factor not addressed in Figure 1 is the consideration by theOEM of other concurrentJIT exchange relationships. Because of syn-ergy and certain production linkages, for instance, an OEM mightconsider initiating JITexchanges across a numberof component parts-materials involving several different suppliers. Clearly, the decisionto initiate a JIT exchange for one component part-materialwith onesupplier will be influenced by the presence or possibility of other JITexchanges. As the OEM grows in its ability to manage multiple JITexchanges, this factor is likely to decrease in importance.

cause of the way in which they are carried out. Figure2 is a framework of processes and constructs that in-fluence the success or failure of initiated JIT ex-changes. The framework is composed of two stages.The implementation stage represents the way in whichthe supplier and OEM work together to achieve de-sired outcomes from the JIT exchange. The reviewstage centers on how the firms evaluate and react tothe outcomes achieved from the JIT exchange. Con-ceptual definitions of the constructs in Figure 2 aregiven in Appendix B.

Implementation StageThree constructs are expected to influence directly theexchange and interaction between the supplierand OEMfrom the very beginning of the JIT exchange: (1) theJIT exchange agreement, (2) expectations, and (3) in-ternal sociopolitical structure. If the JIT exchangeagreement is reasonably formalized, the supplier andOEM are likely to have a better idea of their respec-tive roles and obligations. Formalization is especiallyimportant when interfirm interdependencies are highand the exchange is long-term and complex (cf. Dwyer,Schurr, and Oh 1987). However, formalization can-not be taken to an extreme, as it could hamper thepotential benefits-innovations gained from the JIT re-lationship. For example, by allowing the suppliergreater latitude and responsibility in the product de-velopment process, the OEM may receive better andmore innovative product designs.Contractual solidarity refers to the nature of theregulation used to ensure performance of obligationsin the exchange relationship, whether legal regulation



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FIGURE2The Success-Failure of JIT Exchanges

I --- - - - -- - - -- 1t I I

A I II I I

IImplementation tage Review Stage

or self-regulation(Macneil 1980). If the OEM andsupplier are most interested in the process of theirsubsequentexchange(rather hanlegal recourses)andin self-regulationof disputes (rather han legal regu-lation) in designing the exchange agreement,the JITexchangeis likely to have thepropercollaborativeori-entation from the start. Finally, the fairness of anagreementrelates to the division of benefits and bur-dens between the supplier and the OEM (Macneil1980). To the degree that the exchange agreement sperceivedas being fair to both the OEM and the sup-plier, the JIT exchange will be on a strongerfoun-dation.The expectations(C16) of the supplierand OEMabout their respective levels of performanceon in-herentresponsibilitiesandthe outcomes(e.g., profits)that the JITexchangewill produceundoubtedlyaffecttheir communicationsand behavior in the JIT ex-change. Unrealisticexpectationscan hamperthe suc-cess of the JIT exchange, as performanceand out-comes are not likely to meet such expectationlevels(Howardand Sheth 1969). A reasonablyformalizedexchange agreementshould help to enhance the re-alism of the expectationsheld by the supplierand theOEM. JIT exchange partnersmust have patience inimplementingtheir relationshipbecause of the com-

plexity andnewness of this formof exchange(Schon-berger 1982a).8As the OEM is anticipatedto prefer establishingJIT exchanges with smaller and less powerful sup-pliers to avoid external control and maintain auton-omy (Pfeffer and Salancik 1978), an imbalance ofpower may be present in JIT exchanges (C18). Thispowerimbalancewill be heightenedto the degreethatthe suppliermakes more specialized investments indurable assets than the OEM. A firm with a poweradvantage n a relationshiphas the opportunity o ex-ploit the otherfirm at times throughthe use of coer-cion (Dwyer and Walker 1981; Roering 1977; SterandReve 1980). Severalempirical tudies have shownthat coercive use of power in interfirmrelationshipsseriously weakens theircollaborative nature(cf. Fra-zier and Summers1984;Gaski and Nevin 1985; Hunt

8Realistic expectations appear to be more critical in JIT exchangesthan in otherforms of interfnrmxchange because the exploration phaseof a JIT exchange is somewhat constrained. Dwyer, Schurr, and Oh(1987) point out that the exploration phase involves a "feeling out"period in the relationship during which minimal investment and inter-dependence make terminationsimple. The natureof the JIT exchangerequiresa relatively high level of investment and interdependence romthe start. Therefore, the luxury of slowing forming expectations islacking in a JIT exchange.

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and Nevin 1974; Lusch 1976). Dwyer, Schurr, andOh (1987) suggest that the noncoercive exercise ofpower is the key factor in determiningthe ultimatesuccess of a relational exchange; high interdepen-dence between firms in an exchange relationship n-creases the importanceof thejudicious applicationofpower.If the power asymmetryis extreme and the firmwith the power advantage onsistentlyabuses the otherfirm overtime, the JITexchangeis unlikelyto survive(cf. Ster and Reve 1980). For example, if sales ofthe OEM's end-productdropmarkedly,extremepres-surecould be placed on the JITexchange. The OEMcould respondto such pressureby demandingconces-sions from the supplier.The supplier s likely to viewsuch behavioras highly opportunistic nd feel abused,especially when the sales of its part-material o theOEM are alreadybelow expectationsand adjustmentcosts have been incurred(Walkerand Weber 1987).If the supplierhas made considerableinvestment inspecializedassets, the JITexchange may not dissolveas a result of this one instance. However, if such asituationis repeatedover time, even specialized in-vestmentsare not likely to hold the JITexchange to-gether. Both the OEM and suppliermust recognizethat the JIT exchange benefits both partiesand eachis dependent,to varyingdegrees, on the other.9Two otheraspectsof the exchangeandinteraction(C17) componentof Figure 2 warrantexplicit atten-tion. First, the more people and functional areas ineach firmthatbecome heavily involved in the JIT ex-change, the morelikely it is thatthe foundationof theexchange is stable. As Pfeffer and Salancik(1978, p.146) state in discussing interfirmrelationships,"Themore each becomes enmeshedin the social networksof the other, such thatthereareoverlapsin friendshipnetworksand otherbusiness acquaintances, he morebindingtheirfriendshipbecomes, andthe morestableand predictable t is likely to be."Second, how well each firm carriesout its role inthe exchange may be the most critical aspect of theJIT exchange (Frazier 1983). A JIT exchange de-mandsthatthe supplierdeliver a perfectqualitypart-materialon a timely basis. The OEM must set up itsorganization o be responsiveto the actionsof the sup-plier;every action of each firmmustbe synchronizedcarefully. Shouldeitheror both firmsperformpoorly

9Empiricalresults of Frazierand Summers (1986), based on a studyconducted in a franchise channel of distribution, suggest that if long-termcooperation is an importantelement of the exchange relationship,firms with a high power advantage will tend to use relatively non-coercive strategies in their interfirm influence attempts. Whether ornot this tendency applies to OEM-supplier relationships in JIT ex-changes is an important issue for future research.

on any responsibility,the "just-in-time"natureof theexchange can be severely disrupted.Several JIT ex-changes have failed because of the inability of sup-pliers to deliver perfect quality parts-materialson aconsistentand timely basis (cf. Schonberger1982a).Norms tend to develop (C19) in an exchange re-lationshipwhen uncertaintymustbe stabilized(Lipset1975). Moreover,normsare morelikely to be adheredto when organizationsexpect to interact n the future(Kiesler and Kiesler 1969; Kiesler, Kiesler, and Pol-lak 1967). Given the high uncertaintyevels when theJIT exchange is implementedand its long-term ori-entation, considerableopportunity s presentin a JITrelationship or strongnormdevelopment.By adopt-ing normsandestablishing tandards f conduct(C19),exchangepartners et the generalgroundrules for fu-tureexchange (Dwyer, Schurr,and Oh 1987; Pfefferand Salancik 1978). The chances of success for theexchange are enhancedas a result. Positive normde-velopment in a JIT exchange should be facilitatedif(1) the exchange agreementis orientedtoward self-regulationandis fair, (2) a relatively largenumberofcommittedpersonnelare involved in the operationofthe JITexchange, (3) the JITexchange is seen as ex-tremely importanto the welfareof each organization,(4) expectationsarerealistic, (5) the role performanceof each firmreacheshigh levels in a reasonablyshorttime, and (6) each firm uses its power in a noncoer-cive, problem-solvingway. If strong, positive normsfail to develop, the JIT exchange may not withstandthe pressuresplaced on it over time.Intermsof internalsociopoliticalprocesses(C20),ReinganandWoodside(1981, p. 2) indicatethat eachfirm in an exchange " . . has a motive for coop-eration n order o reacha mutuallyagreeablesolutionand, simultaneously,a motive for competitionin or-der to gain at the other's expense." Where strong,positive norms startto develop in the exchange, co-operationor the degree of joint strivingtowardcom-mon goals should be high (see John 1984). The fre-quency of interfirmconflicts characterizedby mutualinterferenceor blocking behaviors (Ster and Reve1980) shouldbe low; when conflicts do develop, theyare handledin a joint, problem-solvingway. In JITexchanges where expectations are unrealistic, roleperformance s poor, power is used coercively, andpositive normsdo not develop, cooperation evels arelikely to deteriorateand conflict levels are likely torise-a situation hatwould seriouslyhamper he suc-cess of the JIT exchange.Upon implementationof the JITexchange, certainoutcomes(C21) are achievedby each firm. Some out-comes are relatedto changes in costs (e.g., lower in-ventory carrying costs), technology, and productquality. The most importantoutcomes are changes in



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sales and profits for each firm due to the implemen-tation of the JITexchange relationship.Anotherkey outcome contributeso the futuresuc-cess of the JIT exchange-the level of trustthat de-velops between the supplierand OEM. Trust is ex-tremelyimportant n any exchange, but especially ina JITexchangebecause of the investmentsand com-mitmentsby each side. As Williamson(1985, pp. 62-3) states, "Other hings being equal, idiosyncraticex-change relations that featurepersonal trust will sur-vive greaterstress and will display greater adaptabil-ity" (also see Dwyer, Schurr,and Oh 1987; Pfefferand Salancik 1978). A reasonably high level of trustis likely to be presentbetween the supplierand OEMbefore theJITexchange s initiated.However,a "wait-and-see"attitudemay prevail in the JIT exchange asthe firms determinehow the change in the form oftheirexchange relationship nfluences their behavior.As the JIT exchange evolves, each firm evaluateswhether or not the other firm is truly trustworthy.IftheJITexchangeagreement s perceivedas beingfair,some evidence of trustis present. Trust is enhancedas tangible evidence of personal integrity accumu-lates, promises are upheld, and opportunisticbehav-iors are forgone.Review StageTwo standardsof comparison(C22) are likely to beused by the supplier and OEM in judging the out-comesof the JITexchange(AndersonandNarus1984;ThibautandKelley 1959). The comparison evel per-tains to the quality of outcomes a firm has come toexpect from a given kind of relationship,based onpresentandpast experiencewith similarrelationshipsand knowledge of other firms' similar relationships.The comparisonlevel-alternatives, in contrast, per-tains to the averagequalityof outcomesavailable romthe best alternativeexchange relationship.Even if personnelin both firmshave little, if any,experiencewith JITexchanges, they still are likely toform perceptionsabout acceptable levels of perfor-mance on both standardsof comparison. Such per-ceptions may be based on incompleteand ambiguousinformationand hence proneto error.If the compar-ison level is set too high, outcomes from the JIT ex-change will be perceivedto be marginalwhen in facttheymaybe good. If the comparison evel alternativesstandard s set too high, other suppliers(OEMs) willbe seen as betterJIT exchange partnerswhen in factthey are not. Though high switching costs may keepthe firms in the JITexchange even if outcomes fromthe JIT exchange are judged to be poor, the subse-quentexchange relationshipcan be hurtby that ten-dency. It is extremelyimportant, herefore,thatthesestandardsbe given considerablethoughtby each firmand set at realistic levels.

The performanceappraisal C23) process used byeach firm is influencedgreatly by these standards,aswell as by the firms' expectations (C16) about out-comes from the JITexchange (which are likely to bedifferent from either standard).However, other as-pects of the appraisalsystem also influence the suc-cess or failure of the JIT exchange. A performanceappraisalsystem thatis well specified in termsof thecriteriaon which each firm's performance s judgedis of great importance.It servesto make the appraisalprocessmore accurate.Furthermore,manystudieshaveshown thatwhat is measuredor appraised ocuses ac-tivity and behavior (cf. Kerr 1975). Joint appraisalsare also critical, as they reinforce the collaborative,problem-solvingnatureof the JITexchange. Frequentappraisalsprovide the feedback necessary to makecontinual improvementsin the JIT system. Conclu-sions from the performanceappraisalare likely to in-fluence the internalsociopolitical structure C18) ofthe exchange because of their impact on the depen-denceof each firm on the exchange(notethe feedbackeffect in Figure2). If purchasingmanagers n OEMshave used very sophisticatedvendoranalysis systemsin the past to evaluateseveraldimensionsof supplierperformance n marketand traditionalrelationalex-changes, the chances are greater hatan adequateap-praisalsystem will be establishedin JIT exchanges.After performances appraised,each firm is in abetterposition to judge the equity (C24) of the JITexchange (Frazier1983). Equity is judged by com-paringeach firm's rewardsor outputswith its invest-ments-costsor inputs. When the ratios of outputstoinputsare seen as similarfor each firm, the exchangeis perceived to be equitable(Adams and Freedman1976;BlumsteinandWeinstein1969). If equityis highin the exchange, satisfaction evels (C25) arelikely tobe relativelyhigh (Foa and Foa 1974). Furthermore,if outcomes (e.g., sales, profits) gained from the ex-change surpass expectations and standardsof com-parison for the exchange, satisfactionlevels are en-hanced. Because expectancylevels tend to change inthe directionof the reinforcement eceived in the past(Blau 1964), a high level of satisfactionshould rein-force if not heighten levels of expectations (C16) inthe exchange(Frazier1983). High levels of equityandsatisfactionobviouslyareneededfor theJITexchangeto be successful.Table 3 is an overview of the researchproposi-tions developed herein on the factors likely to influ-ence the success of JITexchanges.

Summary and DiscussionAn understanding f exchangerelationships ies at thecoreof the marketingdiscipline.We attempt o extendunderstandingof the exchange relationshipsbetween

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TABLE3Propositions Relating to the Success of Initiated JIT ExchangesImplementation StageThe success of the JITexchange is enhanced when:P1: The JITexchange agreement is reasonably formalized, oriented toward self-regulation, and fair to eachfirm.P2: The supplier and OEMhave realistic expectations of their respective responsibilities, role performance,and the outcomes of the exchange.P3: The firms use their levels of power in a noncoercive, problem-solving way and do not abuse the other

firm.P4: A large number of committed personnel in both firms are involved in the operation of the JITexchangeand develop strong personal bonds in the process.P5: The role performance of each firm is high or at least improving.P6: Positive norms or rules of conduct develop in the relationship.P7: High levels of cooperation are present in the exchange.P8: Conflicts are infrequent and those that do develop are brought into the open and effectively resolved.Pg: High levels of trust develop between the personnel of the two firms.

Review StageThe success of the JITexchange is enhanced when:P1: Standards of comparison are realistic.P2: The performance appraisal process is well specified and done frequently in a joint way.P3: The financial outcomes of the exchange are perceived to be outstanding.P4: The exchange is perceived to be equitable in terms of the inputs and outputs of each firm.P5: Satisfaction levels are high in each firm.

OEMs and suppliers of component parts-materials bybringing together several important streams of re-search, including the transaction cost analysis, re-source-dependence, political economies, and rela-tional exchange perspectives.We begin by clarifying what a JIT exchange en-tails and how JIT exchanges compare with market ex-changes and traditional relational exchange in termsof their characteristics. This discussion is the foun-dation for the development of conceptual frameworksfocusing on (1) the conditions conducive to the ini-tiation of JIT exchanges and (2) the factors likely toinfluence the success or failure of initiated JIT ex-changes.The question of why organizations engage in spe-cific forms of exchange relationships is a crucial one,as underscoredby Bagozzi (1979). Williamson's (1975,1985) transaction cost analysis (TCA) addresses thisquestion and makes predictions of when market ex-changes or hierarchical exchanges will occur. Thoughtransactioncost analysis is an excellent framework thathelps contribute to our understanding of organiza-tional issues, some researchers have noted that it islimited in both depth and scope. For example, Har-rigan (1983) argues that TCA ignores the strategicplanning of the firm and the firm's drive to achieve acompetitive advantage. Further, Heide and John (1988)suggest that TCA is incomplete in its ability to explaininterdependencies among firms within an interorgan-izational system (also see Robins 1987). Of crucialimportance is the fact that the relational form of ex-

change is not addressed to any degree by the TCAapproach.The framework in Figure 1 includes the main con-structs of transaction cost analysis, as well as impor-tant constructs suggested from the political economies(Achrol, Reve, and Stem 1983; Stem and Reve 1980)and resource-dependence frameworks (Pfeffer andSalancik 1978). The end result of this integration ofdifferent perspectives appears to be a deepening of ourunderstanding of when JIT exchanges, a form of re-lational exchange, are most appropriate.Also important is our effort to develop a frame-work (Figure 2) that examines factors influencing thesuccess or failure of initiatedJIT exchanges. Even whenthe underlying conditions are right for a JIT exchange(Figure 1), it is not guaranteed to succeed, especiallyif the OEM and supplier lack the level of commitmentnecessary to execute a JIT exchange, have unrealisticexpectations about what a JIT exchange can accom-plish in a short period of time, and take an adversarialapproach in the relationship. Again, elements fromseveral research perspectives are integrated in Fig-ure 2.We hope our article will stimulate a variety of re-search efforts in the industrial marketing field. Em-pirical studies are needed to examine thoroughly thepropositions developed here. None of the propositionscan be accepted at this time because of the lack ofempirical testing. Moreover, comparative studies con-trasting traditional suppliers of component parts-ma-terials with JIT suppliers of the same goods have the



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potentialto make a majorcontribution.It would alsobe very useful to examine the "copingbehaviors"offirmsthatare displacedby the trend to JIT, both sup-pliers not selected in the JIT screening process andnonadopterOEMs. Theoreticalresearch is needed todeepen and extend the frameworkswe propose. Theframework in Figure 1 can be extended to indicatewhen market exchanges, traditional relational ex-changes, and hierarchicalexchanges are most appro-priatefor firms to use. Futureresearch also mustad-dress such questions as: How should the supplier'smarketingfunction be organized to serve JIT cus-tomers? Which strategiesareeffective in breakingupJITrelationshipsestablishedby competitors?How dothe benefits and costs of a JITrelationshiphangeoverthe course of its life cycle? Such researchhas the po-tential to contribute ignificantlyto ourunderstandingof exchanges of component parts-materialsbetweensuppliersand OEMs in industrialmarkets.As many U.S. industrialfirms strive to improveprofitabilityby reducingthe total costs of materialac-quisitionandimprovingproductivity,greaterattentionis being paid to JIT exchanges as one possible solu-tion to the problemof gaining competitive advantage.Unfortunately, practitionershave many misconcep-tions about what constitutesJITexchangesand the ac-tions requiredon the partof OEMs and supplierstoimplement hem. Morespecificallyandas pointedoutby Schonberger1982a), many practitionersave beenslow to graspfully the marketing mplicationsof JITexchange relationshipsand have viewed JIT only asan alternativeproduction-deliverysystem. Our de-tailed descriptionof JITexchanges may prove usefulto marketing managers in clarifying what JIT ex-changesentail. Moreover,the frameworksdevelopedhere will raise issues that should be considered bymanagers n (1) deciding which form of exchange touse for given parts-materials nd(2) attempting o im-plementJITexchanges successfully. (Again, we em-phasize that none of the propositionswe offer can beaccepted straightforwardlybecause of their prelimi-narynature.)Given the costs (both concrete andpsy-chological), the potential loss of decision autonomy,and the increasedinterdependencebetween the OEMand the supplier in JIT exchanges, one must weighverycarefully he needfor a JITexchangeandwhetherit does, in fact, make sense.At the presenttime, the majorstumblingblock tothe successof the JITexchange appears o be the abil-ity (or inability) of OEMs and suppliersto work to-getheras full partners.Fora JITexchangeto prosper,a strong,collaborativenterfirm elationships needed.In the past, manyOEMshave seen JITexchanges pri-marilyas a way to get theirsuppliersto assume someof their inventoryburdenand to get lower prices (cf.Cunningham1986; Hutchins 1986). Many suppliers

see JIT exchanges as a "quickfix" and as a way toensurehigh levels of sales volume over time (cf. Pur-chasing 1986b). Such viewpoints and behaviors in-variablycausethe JITexchangeto fail. Both the OEMand the suppliermust be prepared o devote resourcesnot only to meet the tangible requirementsof the JITsystem, but also to build the commitment and trustnecessaryfor a strongJITexchangeto be established.JIT exchanges appearto be the ideal setting for im-plementationf themarketing oncept frombothsides)because of each firm's desire to familiarize the otherfirm with its needs and business operations.Finally, we note again that exchanges of compo-nent parts-materials ave receivedrelatively little at-tention n the marketingiteratureKotler1984). Mostconceptual rameworksandtheories n marketing reatsuch goods as a relatively simple and uninterestingproduct ategory.As a case in point,componentparts-materials ommonlyareclassifiedas convenience temsrequiring ow effort in the purchasedecision andlowrisk (cf. Murphy and Enis 1986). Moreover, theseproductsgenerallyare talkedabout as fitting into thestraight ebuypartof thebuyclass rameworkcf. Amesand Hlavacek 1984). The concepts of buying centersand selling centers typically are seen as being muchmoreapplicable o andimportantn otherproductcat-egories, such as capital equipmentor minor equip-ment (cf. Huttand Speh 1984; Johnstonand Bonoma1981; Spekman and Johnston 1986). The personalselling and salesforce managementliteratureshaveconcentratedmore on productsand services requiringsignificant"creative elling"efforts,so to speak.Theseviews appear generally correctif applied to marketexchangesof componentparts-materials.They do notapplyto JITexchangesof suchgoods. The JITsystemis revolutionizing he ways in which componentparts-materials are being exchanged between OEMs andsuppliers in industrial markets. Consequently, ourmarketing rameworksand theoriesmust be adjustedto take into accountsuch changes.

ConclusionThe general purpose of this article is to extend ourunderstanding f the exchange relationshipsbetweenOEMs and suppliers of component parts-materials.Becauseof the formative tageof researchn this area,we contrastJIT exchanges with otherforms of inter-firm exchange and develop frameworksfocusing ontheconditionsunderwhich JITexchangerelationshipsare likely to be initiated and successfully imple-mented. Propositionsare developed that warrantem-pirical inquiry. Practically, we try to provide usefulinsights into how and why JIT exchanges emerge,evolve, grow, or fail. Ourhope is thatthe articlewillstimulatethought,debate, andempiricalresearch hat

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will contribute to a greaterunderstandingof OEM-supplierexchange relationships n the future.Appendix ADefinitions of Constructsin Figure 1

Interest Stage* External economy (Cl): The prevailing and pro-spectiveeconomicenvironment acedby the firm(Stem and Reve 1980).* External polity (C2): The external sociopoliticalsystem in which the OEM operates;it is pri-marilydescribedby the distributionand use ofpower by competitors, suppliers, customers,government agencies, etc. (Stem and Reve1980).* Market position and aspirations of the OEM(C3): The OEM's currentmarketstanding n itsindustry,the trendin its marketstanding, andthe magnitudeof the goals it has set for the fu-ture.* Decision-making uncertainty (C4): The degreeto which future states of the world cannot be

anticipated nd accuratelypredicted PfefferandSalancik 1978).* Internal economic structure and processes (C5):Theformof exchangerelationshipurrently sedby the OEM to satisfy its need for the part-ma-terial, as well as its level of interest in otherformsof exchangenotcurrentlyused(Ster andReve 1980).* Part-material (C6) and end-product character-istics (C7): Characteristicsof the part-materialandend-producton which the OEMis focusingattention.

Initiation-RejectionStage* Transaction-specific investments (C8): Invest-ments that are highly specializedto the buyer-seller exchange and not easily redeployed,if atall, shouldthe exchangefail (Williamson1975,1985).* Transaction costs (C9): The costs associated withrunninga relationshipWilliamson1975, 1985);thatis, they encompass he costs associatedwithnegotiating, implementing,coordinating,mon-itoring, adjusting, enforcing, and terminatingexchange agreements(also see Macneil 1980;Walkerand Weber 1987).* Search and evaluation (CO1): The way in whichthe OEM gathersand analyzes informationre-lating to the JITexchange.

* Availability of potential exchange partners (C11):The numberof eligible suppliersavailable forestablishinga JIT exchange.* Strategic vulnerability (C12): The degree towhich the OEM perceives it will be at risk andwill severely limit its strategic options if it en-ters a particular orm of exchange relationship(Porter1985).* Level of financial resources (C13): The work-ing capitalandborrowingcapacityof the OEM.* Exchange relationship decision (C14): TheOEM's decision whether or not to establish aJIT exchange.

Appendix BDefinitions of Constructsin Figure 2Implementation Stage

* JIT exchange agreement (C15): The nature ofthe JITagreement etween hesupplierand OEMin terms of its formalization,contractualsoli-darity, and fairness.* Expectations (C16): What the firms considerreasonableto anticipatein terms of behaviorsand outcomes from the JIT exchange relation-ship.* Exchange and interaction (C17): The way inwhich the firms communicatewith one anotherandperform heirrespective oles(Frazier1983).* Internal sociopolitical structure (C18): The pat-tern of power-dependencerelations in the ex-change relationship(Sternand Reve 1980).* NormdevelopmentC19):Theway in which rulesof conduct and expected patternsof behaviorbecome partof the cultureof the OEM-supplierrelationship Lipset 1975).

* Internal sociopolitical processes (C20): Thedominantsentimentsand behaviorsin the formof cooperationandconflict thatcharacterize heinteractionsbetween the supplierand OEM inthe JITrelationship(Sternand Reve 1980).* Outcomes (C21): The results or consequencesof conductingthe JIT exchange.

Review Stage* Standards of comparison (C22): The base mea-suresby which the firmsjudge the outcomesofthe JITexchange (Andersonand Narus 1984).* Performance appraisal (C23): The system-pro-cess used in judging the outcomes of the JITexchange.



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* Equity (C24): The degree to which the JIT ex-change is perceived to be just, impartial, andfair.

* Satisfaction (C25): A party's affective state of

feeling adequately or inadequately rewarded forthe sacrifice undergone in facilitating an ex-change relationship (Howard and Sheth 1969).

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