Competition or Cooperation? Promoting Supplier Performance with Incentives Under Varying Conditions of Dependence

Abstract

In this study, we use the lens of social exchange theory to investigate the influence of incentives on supplier performance under various conditions of buyer–supplier dependence. We propose that incentives generally fall into two main categories: competitive, market-based incentives that reward suppliers based on how well they perform relative to other suppliers, and cooperative incentives, where both buyer and supplier share benefits based on their joint performance. Using empirical data collected from 230 buyers in a sample of U.S. industrial firms, we measure the effects of these two types of incentives on various measures of performance, as well as the moderating effects of buyer–supplier dependence. Our results suggest that competitive incentives can be an effective approach to improving delivery, quality, innovation and flexibility, for purchases where the buyer–supplier relationship is characterized by balanced and moderate amounts of mutual dependence. However, competitive incentives are ineffective at generating improved cost performance. Cooperation appears to be the only way to improve cost but is only fruitful under conditions of high mutual dependence. In general, we find that high mutual dependence provides a good basis for cooperative incentives to successfully improve each of the types of performance included in our study. Finally, we find evidence that cooperation and competition can coexist without significant risk of decreased performance

Unintended Consequences: How Suppliers Compensate for Price Concessions and the Role of Organizational Justice in Buyer‐Supplier Relations

“…Expanding on the above, it has also been shown that such dependence can significantly affect the relationship between trust and resource allocation (Pulles et al. ), which further amplifies extant work suggesting that cooperation in such relationships can alleviate cost issues in such exchanges (Terpend and Krause ).…”

“…) and the power balance dynamics in the relationship can be better managed (Nyaga et al. ; Terpend and Krause ).…”

Mitigation, Avoidance, or Acceptance? Managing Supplier Sustainability Risk

“…Kraljic's four purchased-item categories, that is, strategic, leverage, noncritical, and bottleneck items, are suggested to map perfectly onto the four buyersupplier dependence matrix quadrants, that is, interdependence, buyer dominance, independence, supplier dominance, respectively (Cani€ els & Gelderman, 2007;Terpend & Krause, 2015). Our model suggested that supply managers adopt a collaborative approach to develop suppliers' sustainability-related capabilities and improve their ecological and social performance to mitigate any level of supplier sustainability risk in their interdependent relationships with suppliers.…”

Supplier dependence and R&D intensity: The moderating role of network centrality and interconnectedness

“…However, much less attention has been devoted to a theory of why and when dependent suppliers invest in R&D, which is a key determinant leading to a sustainable competitive advantage (Chen and Miller, 2007). Furthermore, little is known about the influence of social capital on the link between supplier dependence and R&D investment (Brinkhoff et al, 2015; Elking et al, 2017; Terpend and Krause, 2015). Consistent with Schildt et al (2012), we argue that organizational collaboration leads to the development of social ties and partner‐specific knowledge that affect the variance in firms’ R&D intensity.…”