Why Do Suppliers Charge Larger Buyers Lower Prices?

The phenomenon of input suppliers charging larger buyer firms, relative to smaller buyer firms, lower prices is commonly explained in terms of supplier economies of scale, supplier competition for larger buyers, and the larger bargaining power of larger buyers. This paper provides an alternative explanation, and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers can sustain in their output market. This result also provides a new mechanism through which a ban on price discrimination by input suppliers may lower consumer welfare.     

Value for value—The dynamics of supplier value in collaborative new product development

Suppliers are recognized as an important source of innovation. Research into supplier involvement in new product development has shown that benefits can potentially be reaped by customers. However, a relatively unexplored precondition is the willingness of suppliers to invest in their customers’ innovative efforts. In this exploratory, theory-extending research, we investigate the value that a supplier can experience from being involved in high tech firms’ new product development. We find that value comes in three forms for suppliers: (1) financial payment for sales volumes and product development services, (2) technological knowledge and product designs, and the (3) reputation of doing business with leading-edge firms Additionally, we place this in a dynamic, long-term perspective, and find indications for a positive or negative feedback effect, depending on the emphasis the buyer puts on collaborative innovation with the supplier and the extent to which suppliers can use competences, knowledge and reputation resulting from the collaboration in subsequent business development activities. The positive effect results in added value for both parties in the dyad, and the negative effect leads to the opposite.     

The effect of buyer behaviors on preferred customer status and access to supplier technological innovation: An empirical study of supplier perceptions

Buying firms are increasingly looking to suppliers for technological innovations that enhance the competitive position of their new products. However, extant research provides limited guidance on how buying firms may gain access to suppliers' innovative technologies. To address this gap in the literature, we draw from social exchange theory to posit sequential relationships among buyer behaviors, preferred customer status, and supplier's willingness to share technological innovations. We test our assertions by applying structural equation modeling statistical analyses to survey response data from 233 sales personnel of production good suppliers in the U.S. automotive industry. Whereas our results show that two buyer behaviors – early supplier involvement and relational reliability – positively affect preferred customer status, a third behavior – share of sales – has no effect. In turn, we find that preferred customer status is positively associated with supplier's willingness to share new technology with the buyer. Further, our findings indicate that preferred customer status fully mediates the benefits exchanged within a buyer–supplier relationship. Hence, our study highlights why buyers seeking innovations should take care that their behavior is appropriate for managing suppliers' perceptions. Accordingly, our results provide specific guidance to buyers as to how they may increase their access to suppliers' new technologies.     

Cartelization Through Buyer Groups

Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to commit credibly to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an ‘implied cartel’ depends on the retailers’ incentives to source their inputs secretly from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase provisions. We discuss the relevancy of our findings for antitrust policy.     

Risky Business or Competitive Power? Supplier Involvement in Japanese Product Design

Notwithstanding the alleged risks of outsourcing design work, leading manufacturers in the Japanese automotive industry collaborate closely with their key suppliers. Despite widespread recognition of the effectiveness of these close-knit supplier networks, however, little research exists on the factors that affect the purchase of design work from suppliers. S. Nazli Wasti and Jeffrey K. Liker fill this gap by exploring the factors that affect Japanese automotive firms' purchase of design work from their component suppliers. Using data from a survey of 122 Japanese automotive component suppliers, their study addresses two key questions. First, what factors lead Japanese buyers to involve some suppliers heavily in design while giving others relatively little control over design decisions? And second, does the Japanese practice of involving suppliers in design offer performance benefits? The study focuses on first-tier suppliers of parts, assemblies, and complete subsystems (e.g., audio, fuel and emissions, heating and air conditioning). The study does not include suppliers of raw materials and chemicals, assembly and processing equipment, indirect materials, tooling and dies, computers and software, or engineering and business consulting services. The study breaks down the broad concept of supplier involvement in design work into three measurable elements: the extent to which the supplier influences decision-making during the early stages of product development; the amount of control the buyer retains over the design; and the frequency of design-related communication between the buyer and the supplier. Factors that have a positive effect on the level of supplier involvement among the companies studied include technological uncertainty of the component and the supplier's in-house technical capabilities. For companies in the study, the level of competition in the supplier market has a negative effect on the degree of supplier involvement in design. The responses indicate that supplier involvement offers performance benefits for both the supplier and the buyer. For the supplier firms studied, increased involvement in the design process permits greater focus on design for manufacturability (DFM). And of course, supplier-generated design improvements clearly benefit the buyers, allowing these firms to capitalize on the experience and the insight that their suppliers have regarding the parts that they supply.     

Power,buyer trustworthiness and supplier performance: Evidence from the Armenian dairy sector

The paper presents a Multiple Indicators and MultIple Causes (MIMIC) model for explaining the relationships between buyer-seller power, buyer trustworthiness and supplier satisfaction / performance. The model draws on an organizational supply chain perspective of power and is verified using data relating to dairy farmers’ relationships with their main buyer in Armenia. The analysis indicates that buyers are more trustworthy where there is greater competition for supplies. Buyer trustworthiness is also positively correlated with both the size of a supplier, as well as a supplier being a member of a marketing cooperative. Buyer trustworthiness has a positive impact on suppliers’ satisfaction (regarding their relationship with their main buyer) and enhances the quality and quantity of suppliers’ output.     

How to distinguish innovative suppliers? Identifying innovative suppliers as new task for purchasing

For companies operating under unfavorable macroeconomic conditions, such as high wage/high tax countries in central Europe, innovation has become a central theme for survival. If there is one thing that has changed in innovation management during the last decade, it is the growing reliance on external sources of technology. As a consequence, a new task for purchasing arises, as firms need to understand which suppliers actually do have high potential contributing to the innovativeness of the firm and which do not. This paper focuses on the conceptual basis and derives propositions on the nature of innovative suppliers: specialized, technically competent firms, located in the proximity of the buyer, being embedded in a trusted and intensive relationship are identified as having a higher probability to be the core innovative suppliers. These criteria can serve to refine strategic sourcing decisions and improve communication between engineering and purchasing professionals.     

The Effects of Supplier Involvement and Knowledge Protection on Product Innovation in Customer–Supplier Relationships: A Study of Global Automotive Suppliers in China

Globalization drives firms to develop product innovation through their global supply chains. While innovations generated by supply channel members, as opposed to individual partners, are playing an increasingly important role in the success of all supply chain partners, there has been limited research on how supply chain relationships cultivate the process of such innovation generation, particularly in emerging markets. Correspondingly, this study explores how multinational suppliers can develop adaptive product innovation to create competitive advantage in emerging markets. Drawing on the knowledge‐based view and transaction cost economics, this study investigates the influence of supplier involvement and other factors on supplier innovation and performance. The results of a survey of 170 multinational automobile suppliers in China provide support for most of the hypotheses. Specifically, supplier involvement in codesign has an inverted U‐shaped relationship with product innovation. Furthermore, knowledge protection, trust, and technological uncertainty are all found to drive greater product innovation. In addition, the institutional environment moderates the effect of product innovation on performance. Overall, this study enhances our understanding of how MNEs can acquire local knowledge and develop adaptive products in emerging markets.     

Gaining from vertical partnerships: knowledge transfer,relationship duration,and supplier performance improvement in the U.S. and Japanese automotive industries

We study sources of operational performance improvement in supplier partnerships. We argue that supplier performance will benefit most where time‐bound relational assets have developed between a buyer and supplier and the firms exploit the resulting communication efficiency by transferring productive knowledge. We examine the effects of two forms of knowledge exchange together with the prior duration of the buyer–supplier relationship. We find similar interaction patterns in two survey samples of Japanese and U.S. automotive suppliers. The effect of ordinary technical exchanges on supplier performance improvement does not vary with relationship duration. The effect of higher‐level technology transfer, however, grows more positive as relationship duration increases. Other results show relevant contrasts consistent with heterogeneous sourcing behavior between the two countries. The findings highlight the role of relational assets and show that it is important to distinguish between simple techniques and higher‐level technological capabilities when studying interfirm relationships. This research extends the literatures on knowledge transfer, buyer–supplier partnerships, and the performance dynamics of interfirm and intrafirm relationships in general. Copyright © 2002 John Wiley & Sons, Ltd.     

Small and medium-sized firms' import behavior: The case of Danish industrial purchasers

This paper focuses on the foreign purchase behavior of small and medium-sized industrial firms in a small European country, and is guided by three main research issues: (1) to what extent are small and medium-sized firms involved in international sourcing; (2) how do small and medium-sized firms initially make contact with foreign suppliers, and what are their motives for choosing a supplier; and (3) how do small and medium-sized firms perceive relationships with foreign suppliers in terms of perceived problems and cooperation? Through a survey administered in Denmark, the results show that small and medium-sized industrial firms are highly involved in international purchasing both within the European Union and abroad. Surprisingly, this involvement does not appear to be significantly driven by lack of domestic availability. Instead, the primary drivers for choosing a foreign supplier are price and quality. Finally, product adaptation appears to be a significant element of relationship formation between importers and their suppliers. The paper concludes with a discussion of results, implications, and directions for future research.     

Early supplier integration: the dual role of purchasing in new product development

Interest in early supplier integration in new product development (NPD) has increased as an open innovation approach has become more common in firms. To support supplier integration, the purchasing function of a firm can assume a new ‘dual’ role: contributing to NPD while also managing overall costs. Previous research has offered few insights into how the purchasing function should best be organised so that it will fulfil this dual role. This paper reports on the results of a consortial benchmarking study in which an industry–academic consortium visited and analysed six best‐practice firms. The findings describe how innovative firms organise their purchasing function, distinguishing between ‘advanced sourcing’ and ‘life‐cycle sourcing’ units. The results include the tools that these firms use, such as regular innovation meetings with suppliers and technology roadmaps linking firm strategy, innovation strategy and sourcing strategies. The paper also recommends that researchers shift from a narrow focus on a single project to a broader consideration of supplier and organisational issues in NPD.     

Key supplier relationships and product introduction success: The moderating roles of self-enforcement and interdependence between buyer and supplier

This study investigates the extent to which strong relationships between a firm and its key suppliers promote effective new product introduction. Building on the relationship marketing literature, we identify self-enforcement and interdependence as two contingent relational variables that influence the strength of the buyer–supplier relationship. We use data from a survey of 2331 manufacturing firms in China to test the hypotheses. The results show that strong relationships with key suppliers correlate with product introduction success and that this positive effect is contingent on the two relational variables identified. Self-enforcement strengthens the utility of strong supplier relationships for these Chinese manufacturers, and buyer–supplier interdependence enhances this relationship.     

“I want you back”: On the strategic roles of boundary spanners in supplier switching-back processes

This paper builds upon literature addressing boundary spanners and switching suppliers in order to explore an under-examined aspect of buyer–supplier relationships: how different individuals at multiple organisational levels affect processes by which firms return, or “switch back”, to former suppliers after breaches in their relationships. Our study followed a qualitative approach by applying an abductive research methodology to make sense of 85 semi-structured interviews with executives involved in the erstwhile buyer–supplier relationships that we investigated. We found that supplier switching-back processes (SSBPs) can be understood as constituted by a set of alignments and misalignments between boundary spanners (i.e. top management, purchasing and sales agents, engineers and technicians) in the organisations involved. Thus, peoples' interactions, or lack thereof, directly affect the possibility for buyers and suppliers to restore their severed relationships. We conclude that boundary spanners pursue seven distinct roles during different periods in SSBPs, roles that relate to three identified functions of boundary spanners in such processes. The paper closes by highlighting what our findings imply for business managers, limitations and some possible directions for future research.     

Corrigendum to “The effect of spatial variables on the economic and environmental performance of bioenergy production chains” [Int. J. Prod. Econ. 131 (2011) 224-233]

Using a knowledge-based perspective, we identify and test the conditions enabling inter-firm learning in the aerospace supply chain. We focus on buyers accessing knowledge from their suppliers. Hypotheses are tested via a cross-sectional survey of supplier relationships of prime contractors in Canada's aerospace industry. The variables identified as having a significant impact on inter-firm learning are as follows: the quality of the buyer–supplier relationship in terms of trust, collaboration, socialization and information sharing; the proprietary links between both firms; and the use of ITC collaboration tools.     

Buyer and supplier attractiveness in a strategic relationship — A dyadic multiple-case study

In a strategic buyer–supplier relationship (BSR), both the buyer and the supplier aim to leverage the relationship for gaining competitive advantage. Since strategic BSR requires a lot of effort from both parties, firms have become very selective in terms of with whom they engage in a strategic BSR. Therefore, both buyers and suppliers must shape their attractiveness in order to get the other party to put effort to the relationship. Towards this end, the present study explores the drivers of buyer and supplier attractiveness in strategic relationship through 43 interviews in six buyer–supplier dyads. We identified four main categories of both buyer and supplier attractiveness: 1) economic-based, 2) behavior-based, 3) resource-based, and 4) bridging-based attractiveness. We find economic- and behavior-based attractiveness strongly present in all dyads, while resource- and bridging-based attractiveness are emphasized when the strategic intent has more explorative elements and when the aim is to leverage the dyadic relationship in developing businesses outside the dyad. We synthesize our results to a model of attractiveness in a strategic BSR, which bring forth dyad considerations of buyer and supplier attraction.     

The Chinese paradigm of global supplier relationships: Social control,formal interactions and the mediating role of culture

This paper reports the results of a study that examined how firms can establish successful business relationships with Chinese suppliers. Its aim is to explore salient characteristics of the nature of buyer supplier relationships with the emergence of China as a dominant economic power. Two surveys have been conducted that investigated several factors that inhibit and enable effective supplier relationship management (SRM) between organisations sourcing from China and Chinese suppliers, and explored the impact of cultural characteristics of Chinese management on the nature and performance of supplier relationships. The research highlights the importance of the social control aspect of governance structure of supplier relationships and stresses that both social and formal control mechanisms should be implemented for more effective relationships with Chinese suppliers. It also demonstrates the need for companies to recognise the importance of guanxi and several cultural characteristics of the Chinese style of management in SRM and advocates the need for the development of a hybrid Sino-Japanese and global supplier relationship management paradigm that incorporates elements from the existing SRM models. It generates insights into how the cultural context of emerging markets affects the nature of business relationships and generates a research agenda in the field of supply chain management that can explore the development of new paradigms in supplier relationships management. The main theoretical argument put forward centres on the need for the development of a new global supplier relationship management paradigm that will take into account the cultural elements of the Chinese society.     

Effects of Supplier and Customer Integration on Product Innovation and Performance: Empirical Evidence in Hong Kong Manufacturers

While the beneficial impacts of supplier and customer integration are generally acknowledged, very few empirical research studies have examined how an organization can achieve better product performance through product innovation enhanced by such integration. This paper thus examines the impact of key supplier and customer integration processes (i.e., information sharing and product codevelopment with supplier and customer, respectively) on product innovation as well as their impact on product performance. It contributes to existing literature by asking how such integration activities affect product innovation and performance in both direct and indirect ways. After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty). Structural equation modeling with correlation and t‐tests was used to test the hypothesized research model. The findings indicate a direct, positive relationship between supplier and customer integration and product performance. In particular, this study verifies that sharing information with suppliers and product codevelopment with customers directly improves product performance. In addition, this study empirically examines the indirect effects of supplier and customer integration processes on product performance, mediated by innovation. This has seldom been attempted in previous research. The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation. For managers, this study has demonstrated that both information sharing and product codevelopment affect performance directly and indirectly. Managers should put more emphasis on these key processes, especially when linked with product innovation. Managers should consider involving their suppliers and customers in the early stages of design. Information sharing with suppliers is also important in product development. As suggested by this study, extensive effort on supplier and customer integration should be made to directly augment current product performance and product innovation at the same time.     

Demand‐side strategy,relational advantage,and partner‐driven corporate scope: The case for client‐led diversification

Research Summary: We advance research on corporate diversification by joining insights from the demand‐side and relational views in strategy to offer a novel theory of client‐led diversification. We propose that client‐led diversification results from a combination of the customer‐driven opportunities emphasized in the demand‐side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client‐specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client‐led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients. Managerial Summary: Explanations of why firms diversify into new lines of business have largely concerned the redeployment of underutilized resources, with little regard to opportunities or influences stemming from firms’ existing customers. In our article, we show how the changing scope of business needs from a knowledge‐based supplier firm's set of existing clients is a central driver of supplier‐firm diversification, and this is especially the case when the level of relational assets shared between a supplier and its clients is higher. In a competitive landscape where suppliers compete intensively for the business of clients, our results show how managers can increase the likelihood of capturing additional business from its existing exchange relationships rather than bearing the risks of seeking new exchange relationships.     

Decomposing the effect of supplier development on relationship benefits: The role of relational capital

Buyers invest considerably in developing their suppliers, yet the performance effects of such investments are not universal. Drawing on social capital theory, this research investigates whether the relationship between supplier development and relationship benefits may be facilitated by the generation of relational capital. The authors examine mediating and moderating roles of relational capital in the relationship between two aspects of supplier development (capability development, supplier governance) and two dimensions of relationship benefits (supplier benefits, buyer benefits), using survey data collected from 185 suppliers of a large manufacturing firm. Investment in supplier development does not automatically result in benefits for the supplier or reciprocated benefits for the buyer. Rather, relational capital “bridges” supplier development and relationship benefits. Without relational capital, benefits from capability development do not accrue, and the impact of a supplier governance regime can be even detrimental. In conditions of high relational capital, capability development results in lower perceived buyer benefits. The results can help managers ensure that the benefits from their supplier development efforts fully materialize.