Inter-organization trust has an important bearing on supply chain management. The paper reviews the current literature available on the subject and presents the findings of the study conducted in Bangalore across different industries to arrive at the relationship between trust and supply chain management. The results indicate that trust is a very important factor in supply chain management and needs to be nurtured in organizations planning to improve their supply chain capabilities.

Trust is identified as a critical issue in the economic performance of advanced countries (Humphrey and Schmitz, 1998). In the business world, trust promotes collaboration, flexibility, risk taking, shared information, and shared resources. However, this also makes one vulnerable (Doney, 1998).

Trust-based relationships between businesses have been observed as a part of the competitive advantage of manufacturing enterprises in Germany, Japan, and parts of Italy, (Sako, 1992; Putnam, 1993; Lane and Bachmann, 1996). Trust is the latest factor to explain why some countries develop rapidly and others lag behind (Humphrey and Schmitz, 1998).

Trust arises as an issue since economic transactions involve risk (Humphrey and Schmitz, 1998). There are two ways of handling risk, i.e., sanctions and trust. The former one assumes that the other party is selfish, and the later one assumes that opportunists can be differentiated from non-opportunists. (Williamson, 1979).

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