Buyer-supplier negotiations: Determinants of OEM adjustment costs
Abstract
Many original equipment manufacturers (OEMs) are forming closely integrated working relationships with their suppliers in an attempt to improve both their efficiency and product differentiation. However, while OEMs may realize significant benefits from these relationships, substantial costs may also be incurred. This dissertation examines one important cost of OEM-supplier interdependence that has been largely ignored in the literature, the cost to the OEM of negotiating supply contracts. To measure negotiation costs, this thesis develops the concept of OEM adjustment costs. OEM adjustment costs are defined as: the resources which an OEM expends in negotiating changes to contracts with its existing suppliers. A conceptual model of the determinants of OEM adjustment costs is created by drawing mainly from two theoretical frameworks, transaction cost economics and relational exchange theory. Specifically, three primary dimensions are seen as impacting OEM adjustment costs: (a) transaction specific assets, (b) environmental uncertainty, and (c) relational governance structure. Data from over 380 purchasing agents in SICs 35,36,37, and 38 was gathered to examine the propositions emerging from the model. Regression analysis was used to test the hypotheses the transaction specific assets and environmental uncertainty would increase OEM adjustment costs. Relational elements were expected to act as moderators to lower negotiation costs. Two additional factors outside of the focal theories, material cost sensitivity and negotiation importance, were also expected to increase OEM adjustment costs. Data analysis revealed two dimensions of OEM adjustment costs: (a) the resources the OEM expends on its supply contract negotiations, and (b) the OEM's dissatisfaction with the negotiation outcome. A separate model was estimated for each dimension. Results generally confirmed the first model. Consistent with transaction cost predictions, transaction specific assets and environmental uncertainty were found to increase the total resources the OEM expends in negotiations. Support was also found for the relational exchange perspective. Relational elements moderated the impact of OEM investments in specialized assets, and directly reduced the resources expended by the OEM. Somewhat weaker results were found for the second model, although specific assets and relational elements were found to be important predictors of OEM dissatisfaction.
Degree
Ph.D.
Advisors
Woo, Purdue University.
Subject Area
Management|Business costs
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