On the benefits and risks of focused commitment to suppliers

• Published in: International journal of production research Vol. 44; no. 20; pp. 4223 - 4240
• Main Authors: Swink, M., Zsidisin, G.
• Format: Journal Article
• Language: English
• Published: London Taylor & Francis Group 15.10.2006; Washington, DC Taylor & Francis; Taylor & Francis LLC
• Subjects: 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; United States > US; 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
• ISSN: 0020-7543; 1366-588X
• DOI: 10.1080/00207540600575761

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.