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 inInternational journal of production research Vol. 44; no. 20; pp. 4223 - 4240
Main Authors Swink, M., Zsidisin, G.
Format Journal Article
LanguageEnglish
Published 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.
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.
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Issue 20
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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Snippet This paper discusses the merits of purchasing firms of pursuing a focused commitment strategy (FCS) with suppliers. An FCS involves committing long-term...
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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
URI https://www.tandfonline.com/doi/abs/10.1080/00207540600575761
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https://www.proquest.com/docview/29446057
Volume 44
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