Effective relationship management, as a key to a firm's success, has received much attention in the growing field of supply chain management. As an element of relationship management, leading OEMs have in recent years reduced their supplier base and reportedly developed closer relations with fewer suppliers. It has been argued that close relationships enhance the financial performance of the buyer firms through reduced costs and increased revenues. Yet, the benefits of close relationships (financial or non-financial) accruing to supplier firms have not been well documented.;In this study, we empirically assess the strategic, financial, and power-based issues associated with supplier-manufacturer relationships from the supplier's perspective. Specifically, we investigate how the supplier's choices of operations strategy affect its relationship closeness with, and profitability from, the customer as mediated by the power-dependence relation. Cross-sectional data were collected via online and mail surveys from suppliers in the manufacturing industry. Direct and mediated relationships among the operations strategy, the power-dependence relation, the supplier-manufacturer closeness, and the supplier's financial performance were tested using structural equation modeling.;Our findings suggest that suppliers' capabilities associated with an innovation strategy increases mutual dependence between suppliers and customers. High interdependence, in turn, fosters close relationships between the parties through expanded information sharing and joint decision-making while negatively affecting suppliers' profitability associated with the relationships. Yet, a greater degree of information sharing with customers helps suppliers to achieve larger financial benefits from the relationships. Thus, developing close ties with customers entails both risks and rewards for suppliers.
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