On the benefits and risks of focused commitment to suppliers |
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Authors: | M Swink G Zsidisin |
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Affiliation: | 1. Department of Marketing and Supply Chain Management , Eli Broad College of Business , Michigan State University , East Lansing, MI 48824, USA swinkm@msu.edu;3. Department of Marketing and Supply Chain Management , Eli Broad College of Business , Michigan State University , East Lansing, MI 48824, USA |
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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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Keywords: | Focused committment strategy Buyer-supplier relationships Supply management |
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