On the benefits and risks of focused commitment to suppliers
This paper discusses the merits of purchasing firms of pursuing a focused commitment strategy (FCS) with suppliers. An FCS involves committing long-term investments with a limited number of suppliers to achieve superior performance. Drawing upon transaction cost theory, agency theory and the knowled...
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Published in | International journal of production research Vol. 44; no. 20; pp. 4223 - 4240 |
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Main Authors | , |
Format | Journal Article |
Language | English |
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London
Taylor & Francis Group
15.10.2006
Washington, DC Taylor & Francis Taylor & Francis LLC |
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Abstract | This paper discusses the merits of purchasing firms of pursuing a focused commitment strategy (FCS) with suppliers. An FCS involves committing long-term investments with a limited number of suppliers to achieve superior performance. Drawing upon transaction cost theory, agency theory and the knowledge-based view, a basis is provided for comparisons of the benefits and risks of such a strategy. Using data gathered from 224 US manufacturing firms, support for the hypothesized trade-offs associated with an FCS is examined. The findings support such trade-offs, suggesting that operational benefits accrue from increasing levels of focused commitment beyond unfocused levels - but only up to a point. The results indicate that firms pursuing above-average levels of focused commitment may be subject to risks that offset transactional and scale-related benefits. Detriments from too much focused commitment erode the firm's manufacturing-based competitive performance. In addition, the evidence indicates that profitability and market share growth also suffer. The paper discusses the implications of these findings for managers and for future research. |
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AbstractList | This paper discusses the merits of purchasing firms of pursuing a focused commitment strategy (FCS) with suppliers. An FCS involves committing long-term investments with a limited number of suppliers to achieve superior performance. Drawing upon transaction cost theory, agency theory and the knowledge-based view, a basis is provided for comparisons of the benefits and risks of such a strategy. Using data gathered from 224 US manufacturing firms, support for the hypothesized trade-offs associated with an FCS is examined. The findings support such trade-offs, suggesting that operational benefits accrue from increasing levels of focused commitment beyond unfocused levels - but only up to a point. The results indicate that firms pursuing above-average levels of focused commitment may be subject to risks that offset transactional and scale-related benefits. Detriments from too much focused commitment erode the firm's manufacturing-based competitive performance. In addition, the evidence indicates that profitability and market share growth also suffer. The paper discusses the implications of these findings for managers and for future research. This paper discusses the merits of purchasing firms of pursuing a focused commitment strategy (FCS) with suppliers. An FCS involves committing long-term investments with a limited number of suppliers to achieve superior performance. Drawing upon transaction cost theory, agency theory and the knowledge-based view, a basis is provided for comparisons of the benefits and risks of such a strategy. Using data gathered from 224 US manufacturing firms, support for the hypothesized trade-offs associated with an FCS is examined. The findings support such trade-offs, suggesting that operational benefits accrue from increasing levels of focused commitment beyond unfocused levels - but only up to a point. The results indicate that firms pursuing above-average levels of focused commitment may be subject to risks that offset transactional and scale-related benefits. Detriments from too much focused commitment erode the firm's manufacturing-based competitive performance. In addition, the evidence indicates that profitability and market share growth also suffer. The paper discusses the implications of these findings for managers and for future research. [PUBLICATION ABSTRACT] |
Author | Swink, M. Zsidisin, G. |
Author_xml | – sequence: 1 givenname: M. surname: Swink fullname: Swink, M. email: swinkm@msu.edu organization: Department of Marketing and Supply Chain Management , Eli Broad College of Business , Michigan State University – sequence: 2 givenname: G. surname: Zsidisin fullname: Zsidisin, G. organization: Department of Marketing and Supply Chain Management , Eli Broad College of Business , Michigan State University |
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Keywords | Profitability Labour costs Knowledge base Long term Buyer-supplier relationships Purchasing Transaction cost Supplier customer relationship Firm management Supply management Purchases Focused committment strategy Investment |
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SubjectTerms | Applied sciences Buyer-supplier relationships Commitments Competitive advantage Exact sciences and technology Firm modelling Focused committment strategy Inventory control, production control. Distribution Manufacturers Operational research and scientific management Operational research. Management science Strategic management Studies Supply management Tradeoff analysis Vendor supplier relations |
Title | On the benefits and risks of focused commitment to suppliers |
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