Essays on the management of long-term manufacturer-supplier relationships by supplier firms

Narakesari Narayandas, Purdue University

Abstract

In this dissertation, we aim to investigate if, akin to supplier focus on the part of the customer firms, customer focus is a sensible strategy for supplier firms. The dissertation is made up of three essays. In the first essay, we empirically assess the impact of long-term relationships with specific customers on the supplier firms' performance using crossectional and longitudinal information data. Our results indicate that maintaining long-term relationships does not come at the expense of sales growth. We find that suppliers in long-term relationships are able to reduce costs over time through better inventory utilization. However, this reduction in cost seems to be bargained away by their customers through lower prices. Finally, we find that supplier firms in long-term relationships achieve higher profitability by differentially reducing their discretionary expenses such as selling, general and administrative overhead costs to a greater extent than their counterparts who are transactional in their approach to servicing customers. In the second essay, we look at the impact of changes in costs and quality on the pricing strategies of supplier firms. Consistent with Kahneman, Knetsch, and Thaler's (1986) dual entitlement principle, for capital equipment goods and suppliers of raw materials/consumables manufacturers, we find that the magnitude of price increases in response to increases in costs is greater than the magnitude of price decreases in response to equal decreases in costs. In the case of component suppliers, however, we find support for a reverse type of asymmetry in the magnitude of price changes following changes in costs. As regards, the impact of changes in quality, we find that component suppliers obtain price increases based on improvements in the level of quality over time. This finding provides support for a strategy of continuous quality improvement. In the third essay, using results from an in-depth field study of twenty-five manufacturer-supplier relationships, we look at the issue of when, how and with whom should suppliers enter into long-term relationships. We also discuss actions that suppliers can take to enhance the content and degree of success in long-term relationships.

Degree

Ph.D.

Advisors

Kalwani, Purdue University.

Subject Area

Marketing

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