Do Supply Chain Exemplars Have More or Less Dependent Suppliers?

• Author: Matthew A. Schwieterman,A. Michael Knemeyer,Keely L. Croxton,Jason Miller
• Published date: 01 June 2020
• DOI: http://doi.org/10.1111/jbl.12249
• Date: 01 June 2020

Do Supply Chain Exemplars Have More or Less Dependent

Suppliers?

Matthew A. Schwieterman

1

, Jason Miller

2

, A. Michael Knemeyer

3

, and

Keely L. Croxton

3

1

Miami University

2

Michigan State University

3

The Ohio State University

Extant literature offers differing perspectives regarding whether buying firms benefit from having highly dependent suppliers. One view is

that buyers benefit from having dependent suppliers as this provides buyers the ability to dictate terms in the relationship. An alternative

perspective is that buyers are worse off from having dependent suppliers in that this dependence can lead to conditions that harm value creation.

In this manuscript, supply chain management theory is extended by evaluating these differing predictions. This is accomplished by analyzing a

database from Bloomberg of objective, secondary data for more than 3,000 supplier relationships for 49 firms independently recognized as pos-

sessing exemplar supply chains and 530 of these firms’largest industry rivals based on GICS industry codes. These data are utilized to develop

a portfolio-level measure of buyer–supplier dependence that incorporates the bilateral nature of dependence. The findings indicate that, relative

to their industry rivals, firms with exemplar supply chains have suppliers with a lower level of dependency. These results contribute to theory,

inform management practice, and suggest avenues for future research.

Keywords: dependence; buyer–supplier relationships; industrial organization economics; relational view

INTRODUCTION

Dependence is one of the most fundamental aspects of buyer–

supplier relationships (Pfeffer and Salancik 2003; Lanier et al.

2010) and interorganizational relationships in general (Oliver

1990; Pfeffer and Salancik 2003). The bargaining power of sup-

pliers associated with dependence is captured as an element in

Porter’s Five Forces model (Porter 1980), and the existence of

dependence impacts a firm’s ability to create and capture value

from its supply base (Crook and Combs 2007; Kim and Hender-

son 2015). In general, scholars conceptualize dependence as a

relative concept, such as Emerson’s (1962) classic view that

dependence is a ratio of each party’s importance to the other.

Viewing dependence as a relative concept is warranted in that it

captures that one firm’s dependence on another is not a property

of a firm itself, but rather arises from the nature of a firm’s

exchanges (Thompson 2003). Furthermore, this view aligns with

theoretical arguments that “for the dependence between two

organizations to provide one organization with power over the

other, there must be asymmetry in the exchange relation-

ship...Without asymmetry in the exchange relationship neither

organization possesses a particular power advantage”(Pfeffer

and Salancik 2003, p. 53).

Despite the omnipresence of dependence, there are conflicting

theoretical perspectives regarding how buyers should manage

supplier dependence. One school of thought, rooted in the indus-

trial organization (IO) economics literature (Adelman 1949; Por-

ter 1974; Galbraith and Stiles 1983), proposes that buyers should

have suppliers who are dependent upon them in order to have

the ability to influence suppliers’operations. An alternative

school of thought, rooted in the relational research tradition,

including the relational view of the firm (RVF) (Dyer and Singh

1998), suggests buyers may not desire highly dependent suppli-

ers. This might be because buyers are likely to pressure highly

dependent suppliers such that value creation is so severely

harmed that buyers, ultimately, capture less value from these

relationships (Buchanan 1992; Gundlach and Cadotte 1994;

Kumar et al. 1995; Gulati and Sytch 2007), or because buyers

do not want to feel disproportionately responsible for the sup-

plier’sfinancial health.

To ensure these competing views represent a choice that sup-

ply chain managers face in practice, and are not just present in

academic theory, informal interviews were held with several

managers to gauge their views on this issue. Specifically, the

managers were asked whether they look to develop relationships

with suppliers that will be dependent on them, or do they strive

for more balanced relationships? One of the managers, with over

30 years of experience in sourcing, had seen both approaches

implemented during his career. In one case, he tried to avoid

allocating business to a supplier for whom he felt his company

would represent too large a portion of their business. It was not

that he was afraid this small company could not handle the busi-

ness, but instead the issue was that he did not want the supplier’s

overall success to be so tied to his company. He said, “I knew

we were too big of a part of their business.”To avoid this situa-

tion, he sought out more balanced relationships. In another case,

this same manager worked on the supply side, selling product to

a dominant customer. Approximately 45% of his company’s rev-

enue came from this customer. The customer used this depen-

dence to extract price concessions. The manager’s company

ended up with no profit on the business yet felt like they had no

choice but to stay in the relationship. In his words, “They knew

they had us, and they took advantage of us.”

Corresponding author:

Keely L. Croxton, Department of Marketing and Logistics, The Ohio

State University, 2100 Neil Ave., Room 560A, Columbus, OH

43210, USA; E-mail: croxton.4@osu.edu

Journal of Business Logistics, 2020, 41(2): 149–173 doi: 10.1111/jbl.12249

© 2020 Council of Supply Chain Management Professionals

This manuscript seeks to extend the understanding of how

supply chain exemplars manage their portfolios of key supplier

relationships by answering the question: Do firms that are inde-

pendently recognized as having exemplary supply chains form

supplier portfolios that display different dependence characteris-

tics than their rivals? Addressing this question provides a first

step in reconciling these alternative viewpoints, which aligns

with Chamberlin’s (1965) research methodology of testing multi-

ple competing hypotheses, an approach that has been used in

SCM research (Miller et al. 2017). Additionally, answering

descriptive questions in this manner has a long tradition in

science (Heiman 2002) and is especially appropriate when schol-

ars have available a set of subjects considered as exemplars

within a given domain. For the current study, exemplars are

organizations that are independently recognized as managing

highly competent supply chains. Identifying how exemplars dif-

fer from peers provides valuable information to managers trying

to understand sources of competitive advantage (Henderson et al.

2012). Focusing attention on exemplar firms is warranted in that

these firms are highly competent (Pagell and Wu 2009) and

serve as “reference targets”(Giachetti and Lampel 2010) that

other firms seek to emulate (Melnyk et al. 2013). SCM scholars

have previously investigated the behavior of exemplar firms, with

Pagell and Wu (2009) providing an example.

Following precedent of past research (Ellinger et al. 2011), sup-

ply chain exemplars were identified in the current study using the

publically available rankings presented by Gartner, one of the lar-

gest supply chain consulting organizations. The Gartner list has

established itself as the preeminent ranking system for supply

chain competency (Ellinger et al. 2011). Using the Gartner list and

data from the Bloomberg Corporation, each supply chain exemplar

and up to fifteen of its largest rivals (as identified by Bloomberg)

were identified. Data were then extracted for each firm’s most

important suppliers, based on the percentage of each buying firm’s

cost of goods sold (COGS) the suppliers represent. Our sample

comprises data from 3,008 unique buyer–supplier relationships.

Testing using appropriate econometric techniques indicates the

supply chain exemplars have suppliers who exhibit symmetrical

dependence with them vis-

a-vis rivals’suppliers. This finding runs

contrary to standard theorizing in industrial organization (IO) eco-

nomics, but is consistent with arguments from the relational

research tradition that includes (RVF) (Dyer and Singh 1998). Fur-

ther analyses indicate this stems from firms with supply chain

exemplars doing business with larger suppliers and purchasing a

higher percentage of their COGS from their key suppliers.

The remainder of this paper is organized as follows. The next

section describes the literature relevant to the investigation and

summarizes how the current work builds upon these studies. The

third section contains the theory and hypothesis development.

The fourth section details the data collection methodology and

presents results from the econometric modeling. The final section

describes theoretical and managerial contributions, highlights

limitations, and offers suggestions for future research.

LITERATURE REVIEW

Given the central role that dependence plays in buyer–supplier

relationships, it has drawn the interest of scholars from a wide

variety of backgrounds including accounting (Gosman et al.

2004; Gosman and Kohlbeck 2009; Patatoukas 2012), economics

(Lustgarten 1975; LaFrance 1979; Ravenscraft 1983; Kelly and

Gosman 2000; Ellison and Snyder 2010), marketing (Frazier

1983; Kalwani and Narayandas 1995; Bloom and Perry 2001),

strategic management (Galbraith and Stiles 1983; Cool and Hen-

derson 1998; Gulati and Sytch 2007), and supply chain manage-

ment (Benton and Maloni 2005; Lanier et al. 2010; Kim and

Henderson 2015). Moreover, dependence has been an important

part of the literature on interfirm relationships for several decades

(Hillman et al. 2009). While the primary focus of this research is

on dependence, the literature on interfirm power, where depen-

dence creates the conditions by which one party can influence

another’s behavior, is also incorporated.

In general, the preferred means through which scholars have

studied dependence in buyer–supplier relationships has been

through the use of surveys (Heide and John 1988; Heide and

John 1990; Heide 1994; Brown et al. 1996; Benton and Maloni

2005; Petersen et al. 2008; Terpend and Ashenbaum 2012; Pulles

et al. 2014; Terpend and Krause 2015). In contrast, fewer studies

have examined dependence issues, particularly at the firm level,

using secondary data sources to obtain proxies for dependence.

Utilizing archival data as a medium to investigate issues of

dependence provides a way to complement extant survey-based

research by permitting the examination of a larger number of

relationships than is typically feasible with surveys. Moreover,

archival data sources allow for the development of portfolio-level

measures of dependence that provide a more holistic picture of a

firm’s dependence vis-

a-vis examining dependence within a sin-

gle dyad (Schwieterman et al. 2017). In order to outline where

this research contributes to the literature, we detail the extant

research on dependence that utilizes archival data in Table 1.

Several observations can be made from Table 1. First, the vast

majority of these studies have investigated how supplier depen-

dence affects supplier financial performance (Kalwani and

Narayandas 1995; Balakrishnan et al. 1996; Kelly and Gosman

2000; Gosman and Kohlbeck 2009). In contrast, few scholars

have examined whether buyers experience different outcomes

based on varying levels of supplier dependence (Galbraith and

Stiles 1983; Kim and Henderson 2015). Second, most scholars

have operationalized dependence using one-sided measures cap-

turing concentration of sales to one or more large customers. For

example, a supplier’s dependence on a buyer has been measured

as a function of the percentage of a supplier’s revenue that the

buyer represents (Kalwani and Narayandas 1995; Kelly and Gos-

man 2000; Gosman and Kohlbeck 2009). Similarly, a buyer’s

dependence on a supplier or group of suppliers is assumed to be

a function of the percentage of the buyer’s COGS acquired from

the supplier or group of suppliers (Galbraith and Stiles 1983;

Ravenscraft 1983; Kim and Henderson 2015; Elking et al. 2017).

The use of these single-sided measures is understandable given

that data have traditionally been limited to customer relationships

that fall within SFAS 14 disclosure requirements that all publicly

traded firms disclose any customers that represent 10% or greater

of the firm’s revenues. However, single-sided measures are a

limitation given that dependence has been conceptualized as a

function of both parties’reliance on one another (Emerson 1962;

Pfeffer and Salancik 2003). Consider a hypothetical example

where a supplier has large magnitude relationships with two

150 M.A. Schwieterman et al.