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A seminar presented by: M. Johnny Rungtusanatham, Ph.D.

Tuesday, May 1, 2018, 12:00pm-1:00pm
S124 Seymour Schulich Building

Does Excellent Supplier Performance Guarantee Relationship Continuity?
The Role of a Recent Unintentional But Serious Supplier Error

Manufacturers are frequently advised to build and maintain strategic relationships with critical-component suppliers. This advice has merit, given the abundance of evidence attributing improved operational and financial benefits to such relationship arrangements. For critical-component suppliers, performing well in supplying their customers over time, not just once, is expected to ensure relationship continuity. Yet, expecting critical-component suppliers to operate error-free on a continual basis is not realistic. Adopting Assimilation-Contrast Theory and analyzing data collected from 256 sourcing professionals participating in a scenario-based role-playing experiment, we investigate the role of a recent unintentional but serious supplier error on buyer-supplier relationship continuity and on the positive association between historical supplier performance and relationship continuity. Our results indicate, as expected, that when a critical-component supplier with either stellar or marginally-acceptable historical performance errs, its likelihood of being terminated by the manufacturer it supplies increases. More importantly, our results detect a positive supplier performance penalty effect that is robust across conditions of prior supplier involvement in joint product development activities and the availability of attractive substitutes in the supply market. These results have implications for how buyers and critical-component suppliers should manage the dyadic relationship.

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