Supplier integration and the challenge of relationship ... - Springer Link

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Phillip Kirst Erik Hofmann

Supplier integration and the challenge of relationship-exit strategies The article points out, that current rigid supply chains seem to struggle with the dynamic of the environment. Frequent changes of customer preferences and demand as well as dynamic political and economical conditions do pressurize companies to continuous adjustments. If a company is embedded into integrated supply relationships the impact of the adjustments at other supply partners have to be taken into account as well. Thus, more time is needed due to an extended decision-making process, which in turn reduces a companies’ flexibility and may decrease its competitive capabilities. This trade-off between the opportunity to gain relational rents in integrated supplier-buyer relationships on the one side and decreased flexibility on the other side has to be taken into account by an evaluation of the outcome of close relationships. The undifferentiated “romantic” view on cooperation with suppliers neglects the possibility of flexibility reduction and performance weakness due to a lack of market pressure. However, if an integrated supplier-buyer relationship has to be changed, a professional and structured management approach is required in order to achieve a “smooth switch”.

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of Logistics Management, University of St. Gallen, Switzerland

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Contents

1 Introduction: Contemporary challenges of supply markets

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2 Supplier integration as a common supplier-buyer relationship strategy 2.1 The concept of supplier integration 2.2 Drivers of supplier integration 2.3 Benefits of integrated supplier-buyer relationships 2.4 Challenges and risks of integrated supplier-buyer relationships

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3 Disintegrating exit-strategies as a challenging management option in integrated supplier-buyer relationships 3.1 Motivations to supplier-buyer relationship disintegration 3.2 Exit, voice, and loyalty strategies as responses to supplier’s weaknesses 3.3 Challenges of supplier-buyer relationship exit strategies

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4 Further research and management implications

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5 References

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Supplier integration and the challenging combination with relationship-exit strategies

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1 Introduction: Contemporary challenges of supply markets

Since the last two decades companies have been adopting strategies of identifying and focusing on core competencies, skills, knowledge, and technologies in order to satisfy customer demands in an efficient and effective way.1 One result of these strategies has been the extensive reduction of the net added value ratio due to outsourcing of areas, in which companies have no distinctive capabilities. Up to now, there are many industries where the value of purchased materials, components, and systems accounts for 50 to 80% of the total cost of goods sold.2 This circumstance leads to the fact that a substantial part of performance-critical activities are not under the control of the buying company anymore,3 which in turn increases the probability for missteps.4 Thus, companies have to make sure that they always have reliable and efficient access to superior resources from outside the firm boundaries.5 To secure supply becomes even more important, since the environment of organizations changes frequently and more rapidly than ever. Customer preferences are changing day by day which leads to an unpredictability of future demand.6 This trend goes along with a dynamization of the environment due to rapid technological advances and shortened product life cycles that lead to clockspeed competition.7 An increasing number of micro-segments forces companies to create innovative products in shorter time as well as to increase the quantity of product variations to satisfy customer demands.8 Furthermore, globalization of competition continuous and increases the cost and price pressures especially of western companies. The reduced net value added of companies as well as their challenging and highly competitive environment result in the need to use the “best” suppliers and to form exchange relationships in order to stay tuned with recent developments on the supply market. Individual organizations have to cooperate with an increasing number of organizations and simultaneously they have to be able to add or to subtract companies from their supply network. Thus, the ability to form, operate, and end supply relationships in a timely manner is a key capability in turbulent business environments.9 However, every supplierbuyer relationship has to be evaluated individually in order to determine the right way to manage the transaction and allocating rare management resources. Supply relationships can be systemized according to different governance structures, which can range from 1 Fawcett

and Magnan (2002), p. 339. and Keough (1991), p. 23; Arnold et al. (1996), p. 15; Sydow and Möllering (2004), p. 23; Kaufmann and Carter (2006), p. 653. 3 Stölzle and Kirst (2006), p. 240. 4 Rossetti and Choi (2005), p. 47. 5 Dyer and Singh (1998); Smith (2002), p. 39. 6 van Hoek et al. (2001), p. 144. 7 Fine (1998), p. 359. 8 Christopher (2000), p. 37; Lee (2002), p. 105; Hofmann (2006a), p. 75. 9 Fine (1998), p. 200. 2 Cammish

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markets to hierarchies or from arm’s length to partner-style collaborative relationships.10 These are two extremes in a possible continuum of multiple hybrid forms of governance. Supplier integration represents a hybrid-strategy which has been well researched in the recent years.11 Some authors have emphasized that there is a chance to gain a competitive advantage through the establishment of an integrated supplier-buyer relationship.12 It seems to be today’s dominant logic in science and practice that integration of sequentially linked organizations is beneficial and thus, the more integration the better the potential of gaining a competitive advantage.13 However, the concept of supplier integration has to be analyzed more critically, since certain risks like inflexibility and dependency may occur due to the close connection between buyers and suppliers.14 These negative aspects of integration can cause troubles as soon as an exchange-relationship needs to be terminated and a buying company wants to exit or switch to another supplier. On the other hand, sacrificing competitive priorities for short-term cost reductions due to switching is not the right way either. Long-term aspects such as overall efficiencies and the costs of switching integrated suppliers have to be included when analyzing the change of an integrated supplier.15 Thus, supplier integration is a complex phenomenon with various positive and negative aspects. The negative side has been somewhat neglected in research and hence, will be one of the focuses of this article. This paper will describe and explain the phenomenon of supplier-integration and show the different benefits that are related to it. Furthermore, we will describe the challenges and risks that may occur in integrated supplier-buyer relationships, which can destabilize the connection in a way that ending the relationship is the only possibility left. The process of finding the right exit-strategy, through an analysis of the specific circumstances of the planned dissolution will be described in the last part of the paper and reflects the innovative character of the article. In particular we will answer the following questions: • How can the concept of supplier integration be defined and what are its elements? • What are the drivers of supplier integration? • What are the challenges and risks combined with supplier integration? • What kind of options do companies have if an integrated supplier-buyer relationship becomes instable? To answer these questions, we have chosen a conceptual research method, due to its potential to significantly improve the ability to build valid theories.16 This paper will be the fundament of further research activities in the field of supplier integration and 10 Thorelli

(1986); Dwyer et al. (1987). Monczka and Morgan (1996); Cooper et al.(1997); Frohlich and Westbrook (2001); Das et al. (2006). 12 E.g. Dyer and Singh (1998); Lavie (2006). 13 Lambert et al. (1998), p. 15; Bask and Juga (2001), p. 137; Bagchi and Skjøtt-Larsen (2005), p. 275. 14 E.g. Bretzke (2005); Hofmann (2006b). 15 Rossetti and Choi (2005), p. 50. 16 Meredith (1992), p. 11. 11 E.g.


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supplier-buyer relationship exit strategies. The outline of the paper is organized as follows. After the introduction we analyze the concept of supplier integration, its drivers and benefits in section 2. In section 3 we present specific challenges and risks that can occur in integrated supplier-buyer relationships. In addition we will show the reaction options of buyers as soon as a potential risk has turned into a concrete threat. We close the paper with a discussion on possible avenues to tone down the negative side of integrated supplier-buyer relationships and recommend further research activities (section 4). 2 Supplier integration as a common supplier-buyer relationship strategy 2.1 The concept of supplier integration

In general, supplier integration can be defined as, “the combination of internal resources and capabilities of selected key suppliers through the meshing of intercompany business processes to achieve a competitive advantage”.17 A competitive advantage can either be achieved through the intensive use of suppliers knowledge, performance improvements like increased flexibility or decreased quality failures, and cost reductions for example due to less inventory or economies of scale and scope. Supplier integration can be described by the elements that have to be integrated and the different phases an integration process has to go through. Jaspers and van den Ende have stated that supplier integration can take place in the four areas of ownership integration, task integration, coordination integration, and knowledge integration. Depending on the intensity of integration in the different areas, diverse configurations concerning the governance structures can be distinguished.18 Wagner has developed another approach to structure supplier integration.19 He describes that seven stages of supplier integration can be distinguished. The intensity of supplier integration on each can vary from arms’ length to full integration. Wagner further argues that the different stages can be summarized and consolidated in two distinguishable phases – the development phase and the industrialization phase.20 These systemizations can help companies to evaluate their extent of integration and thus, their potential performance improvements, since integration is seen as an avenue to cost reductions and service enhancement.21 The literature offers different approaches for the measurement of suppliers performance.22 Performance in general is a multidimensional construct which includes financial and non-financial metrics. It aims on efficiency and effectiveness, the achievement of 17 Wagner

(2003), p. 4. and van den Ende (2006). 19 Wagner (2003). 20 Wagner (2003), p. 7. 21 Bask and Juga (2001), p. 137. 22 E.g. Carr and Pearsson (1999); de Boer et al. (2001); Talluri and Sarkis (2002); Schmitz and Platts (2004); Talluri and Narasimhan (2004); Kaufmann and Carter (2006). 18 Jaspers

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multiple objectives and has – besides a past- and present-oriented understanding – a future- and potential-orientated dimension.23 Supplier performance can be described as a supplier’s ability to attain desired goals and objectives.24 This generic definition can be enhanced by using a vast range of measures of supplier performance, like transaction cost, delivery performance, and supplier-buyer relationship satisfaction.25 Performance improvements and the potential to gain a competitive advantage are two main drivers of the popularity of supplier integration that will be further described next. 2.2 Drivers of supplier integration

In the last decade supplier integration was strongly stimulated due to the trend of concentrating on core competencies and outsourcing non-core competencies.26 Furthermore, the recognition of interdependencies between buyers and suppliers have been realized, that require strong and robust links between the transaction partners.27 The need for integration primarily has two reasons: (a) Environmental and supply uncertainty; they make reliable long-term planning very hard and thus, cause major risks for buyers that they want to share with their suppliers. (b) Relational rents and competitive advantages, which manifest the opportunity to achieve supernormal performance improvements due to tight linkages and close mutual adjustments. a) Environmental and supply uncertainty

Uncertainty has received extensive attention in various theoretical publications. Two prominent examples are the resource dependence literature28 and the transaction cost approach literature.29 Noordewier, John, and Nevin argue that uncertainty refers to “unanticipated changes in circumstances surrounding an exchange”.30 Environmental uncertainty can either be related to the exchange process or the relationship itself.31 Exchange process uncertainties are related to planning processes and resource availabilities as well as quality and delivery issues. The processes have to be adapted if a change in demand for goods sold or the environment appears. Environmental changes are a dimension of dynamism and can be described as revolutionary, piecemeal, focused, isolated, or incremental.32 Another important dimension of dynamism is time, which qualifies change in relation to change per time unit. The two dimensions can be used to describe the level of dynamism of a system in regard to the pace of change and the 23 Karrer

(2006), pp. 120. and Benton (2000). 25 Artz (1999), pp. 114. 26 Fawcett and Magnan (2002), p. 339. 27 Frohlich and Westbrook (2001); Lin (2004); Jaspers and van den Ende (2006). 28 E.g. Pfeffer and Salancik (1978). 29 E.g. Williamson (1985); Rindfleisch and Heide (1997); Barney (1999). 30 Noordewier et al. (1990), p. 82. 31 Cooper et al. (1997), p. 75. 32 Mintzberg and Westley (1992), pp. 42. 24 Maloni


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frequency of change.33 The more the environment of a company can be considered as dynamic, the more unpredictable elements do influence the firms’ well-being, which in turn leads to higher uncertainty. The second element of environmental uncertainty is related to the behavior of the transaction partners. Behavioral uncertainty is mainly related to the possibility of opportunistic actions of one of the exchange parties. Opportunistic behavior may occur due to information asymmetries between the buyer and the supplier.34 Due to behavioral uncertainties, buyers implement securing mechanisms like contracts or monitoringinstruments. These in turn are leading to an increase of transaction costs, which include costs associated with negotiating, implementing, coordinating, monitoring, adjusting, enforcing, and terminating of exchange agreements.35 Williamson was the first to discuss the importance of transaction cost and its role in exchange relationships. Under the assumption of behavioral uncertainty and bounded rationality, asset specificity, and uncertainty of the upstream activities force companies to find the appropriate governance structure, which leads to the lowest transaction costs.36 It can be stated that high asset specificity and a high frequency of transactions are increasing the likelihood of opportunistically behavior. In this case, transaction cost theory recommends a hierarchical governance of the exchange process.37 Market governance will be appropriate if low asset specificity, minor uncertainty, and little repetition of transactions describe the character of the exchange relationship. In general, the interaction of highly-specific assets, high uncertainty, and high frequency of transactions provide the strongest environment for closer relationships.38 Between the extremes of market and hierarchies, several hybrid forms of exchange relationship coordination can be observed.39 Supplier integration can be regarded as a hybrid governance structure40 and can reduce behavioral uncertainty through a reduction of information asymmetries between transaction partners. Due to the close connection, mutual adjustments, and intense communication in integrated relationships, the asymmetry of information can be reduced and the uncertainties of moral hazard, hidden action, and hidden intention can be decreased.41 The circumstances of uncertainty reduction due to supplier integration have been empirically proved.42 Summarized, it can be stated that environmental uncertainty in general and uncertainty reduction in particular are one of the main drivers of supplier integration. 33 E.g.

Fine (1998). Andersen and Buvik (2001), p. 207. 35 Williamson (1985),pp. 22. 36 Jaspers and van den Ende (2006), p. 821; Ebers and Gotsch (1998), pp. 226. 37 Ebers and Gotsch (1998), pp. 237; Corsten and Gössinger (2001), pp. 4. 38 Cooper et al. (1997), p. 75. 39 Hanke (1995), p. 27. 40 Corsten and Gössinger (2001), pp. 4; Das et al. (2006), p. 566. 41 Terberger (1988), p. 507; Spremann (1990), pp. 568; Picot and Neuburger (1995), p. 16; Barth (2003), p. 98. 42 E.g. Frohlich and Westbrook (2001), p. 194. 34 E.g.

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b) Relational rents and competitive advantages

Relational rents and competitive advantages have been intensively discussed in the relational view of Dyer and Singh.43 The relational view advances the resource based view44 by arguing that critical resources may span firm boundaries. Thus, companies do not only earn ricardian- and quasi-rents but also relational rents that are jointly generated with alliance and exchange partners.45 The authors define relational rents as supernormal profits that are jointly generated in an exchange relationship and cannot be generated by either firm in isolation.46 In opposition to the resource based view the relational view highlights that competitive advantages result from interfirm resources and routines and not only from resources and capabilities that are embedded within the firm boundaries. Thus, “idiosyncratic interfirm linkages may be a source of relational rents and competitive advantage”.47 In general, sustainable competitive advantages can be achieved when firms have resources that are valuable, rare, inimitable, and non-substitutable. They further have to be utilized in combination with value-creating strategies that cannot easily be duplicated by competing firms.48 Finally, when these resources and their related activity systems have complementarities in the external environment, e.g. suppliers, their potential to create sustained competitive advantages will be improved.49 Dyer and Singh argue that organizations can achieve the advantages only as they move the relationship away from the integration related attributes of market relationships.50 This means that they have to be engaged in four categories: Investments in relationshipspecific assets, substantial knowledge exchange, combining complementary but scarce resources and capabilities, and efforts to lower transaction cost of the relationship.51 An engagement within these different categories is combined with extensive efforts in both financial and time resources. However, this strategy only makes sense when the expected value of the combined resources and knowledge of the partners exceeds the expected efforts.52 Due to this, the relational view recommends that organizations should decrease the number of their active suppliers and concentrate on a few. However, this strategy is only fruitful if close and tight linkages between the buyer and the remaining suppliers can be established.53 By committing to this smaller number of suppliers, the buyer firm is transferring bargaining power to the vendors. In return, the buyer can expect greater ex 43 Dyer

and Singh (1998). and Cool (1989); Barney (1991). 45 Lavie (2006), p. 641. 46 Dyer and Singh (1998), p. 662. 47 Dyer and Singh (1998). pp. 660. 48 Conner and Prahalad (1996), pp. 479; Picot et al. (2001), pp. 523. 49 Collis and Montgomery (1998). 50 Dyer and Singh (1998), pp. 661. 51 Dyer and Singh (1998), p. 662. 52 Dyer and Singh (1998), p. 675. 53 Cannon (1999). 44 Dierickx


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ante efforts by the supplier to build relationship specific investments. Thus, “the buyer ends up being better off by keeping a smaller piece of a bigger pie”.54 As a result, supplier integration aims at achieving goals like pushing the new product development process faster, improving use of technology, shorten time to market, minimizing investments in resources and reducing specific costs and response / cycle time.55 This can help a company to achieve a competitive advantage. The theoretical drivers of supplier integration reflect the expectations companies have while implementing close relationships with their exchange partners. Thus, it has to be analyzed, if these expectations can be met in real business practices. The following literature overview represents a short extract of current empirical works on the benefits of supplier integration. 2.3 Benefits of integrated supplier-buyer relationships

The following literature overview is a non-comprehensive summary of publications dealing with supplier and supply chain integration and their benefits. Although it has to be distinguished between the broader concept of supply chain integration and the dyadic perspective of supplier integration, both streams of literature will be analyzed due to their close and overlapping problems. Bagchi and Skjøtt-Larsen identify the underlying factors of supply chain integration in European firms.56 Through correlation analyses and multiple regressions they have revealed that supply chain integration positively affects operational performance and that the degree of integration influences cost and efficiency positively as well. A remarkable outcome of their research on 149 companies is that they have found a significant negative correlation between the length of relationship with suppliers and performance measures such as total logistics costs, on-time delivery, and rate of return. This can be interpreted as one indicator for further research on the negative aspects of integration. Frohlich and Westbrook investigate supplier and customer integration strategies and develop scales for measuring supply chain integration.57 The scales are defined by the direction (towards suppliers and/or customers) and degree of integration (inward-, periphery-, supplier-, customer-, and outward-facing). They have further proved that a high degree of supply chain integration is strongly associated with higher levels of performance. Das, Narasimhan, and Talluri focus on supplier integration practices and their impact on the buyers’ performance.58 The authors develop an optimal set of supplier integration practices, which can be structured in external- and internal-integration practices. They show that deviations from the optimal profile are associated with performance deteriorations. 54 Bakos

and Brynjolfsson (1993), pp. 43. and Monczka (1996), p. 110. 56 Bagchi and Skjøtt-Larsen (2005). 57 Frohlich and Westbrook (2001). 58 Das et al. (2006). 55 Morgan

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Takeishi explores how a firm could outperform others in managing the division of labor with suppliers in product development.59 He argues that supplier integration will bring organizations some benefits such as reduced fixed costs and using specialists’ expertise. Yet, in order to outperform competitors, buyers still have to develop, maintain, and improve their own capabilities to effectively coordinate diverse activities both externally with a supplier and internally within their own organization. Monczka and Morgan are concentrating on supplier integration benefits. In the opinion of the authors, to gain a competitive advantage in supplier-buyer relationships suppliers have to take in a long-term perspective.60 Thus, a reduced supplier base is a prerequisite for robust supplier integration, since the more intimate climate supports information sharing, mutual understanding, and trust-building.61 All addressed benefits of supplier integration are linked to performance improvements. Performance is a multidimensional construct and is influenced by competitive capabilities that represent a companys’ actual or realized competitive strength relative to primary competitors.62 Competitive capabilities influence some of the most important performance measures like quality, delivery, flexibility, or cost. Since supplier integration aims on an improvement of inter-company capabilities it positively influences the stated performance measures. This can either be realized by one single capability or in concert with other capabilities. An overview of the benefits can be derived from different publications that are presented in Table 1, which is related to Rosenzweig et al.63 These advantages of supplier integration and the empirically proven successes of this concept have leaded to the dominant logic in practice and science that more supplier integration leads to even better organizational performance. However, the concept of supplier integration is problematic. It involves various dimensions and varying intensities and can lead to high dependencies on suppliers.64 Besides the problematic integration process dependencies are bearing a main source of opportunistic behavior of suppliers, which need to be taken into account.

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(2001). and Morgan (1996). 61 Rossetti and Choi (2005), p. 50. 62 Stalk et al. (1992); Ward et al. (1994). 63 Rosenzweig et al. (2003), pp. 439. 64 Bask and Juga (2001), p. 149. 60 Monczka


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Benefits of supplier integration

Description

Selected literature

Quality improvements

Companies cannot consistently produce quality products without effective collaboration with suppliers. If buyers and suppliers work collaboratively over time, transaction-specific knowhow accumulates and thus, quality can be improved.

Garvin (1987); Anderson et al. (1994); Rosenzweig et al. (2003).

Delivery reliability improvements

Delivery reliability capability results from relationship-building practices, such as the sharing of technical information through supplier certification, just-in-time manufacturing or supply-chain-wide event-management systems.

Sakakibara et al. (1997); Carr and Pearson (1999); Yen Chun Wu (2003); Heusler et al. (2006).

Process flexibility improvements

Integrated supplier-buyer relationships can lead to significant flexibility-improvements due to mutual adjustments and quick information distribution.

Sanchez (1995); Artz (1999); Bagchi and Skjøtt-Larsen (2005).

Cost reductions

Overtime, the exchange-partners communicating and collaboration in a vast variety of activities, which help both to reduce their (transaction) costs.

Roth (1996); Dyer and Singh (1998); Carr and Pearson (1999).

Table 1: Benefits of supplier integration.

2.4 Challenges and risks of integrated supplier-buyer relationships

Comparatively little has been researched on the negative effects of supplier integration. Only a few publications are mentioning the disadvantages or deal with disintegration. Hofmann discusses the need of vertical disintegration and loosely coupled supplier-buyer relationships.65 He argues that the risks of increasing management complexity, decreasing flexibility, financial risks, shrinking need for innovation, dependencies, partial lost of decision-power, lost performance through a bad cultural fit between buyer and supplier, and the risk of unwanted know-how transfer are increasing through a tight coupling between buyers and suppliers. The risks of tight coupling bear the potential to decrease performance and thus have to be avoided. Hofmann postulates that the end of an integrated relationship has to be taken into account right from the start. This enables the actors to keep market mechanisms running in their relationship, since a realistic exit 65 Hofmann

(2006b).

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option increases the pressure for continuous improvements. Rossetti and Choi present experiences with supplier integration in the aerospace industry.66 They argue that aerospace OEMs have taken the supply base rationalization and integration to an extreme degree and thus, have inadvertently created monopoly sources. Now OEMs are finding themselves in a dependency situation – a fact some suppliers take opportunistically advantage of. In the authors’ point of view, this process was actually possible due to an elimination of competition between suppliers in combination with a neglected development of good supply-relationships. In general, two unfulfilled promises of supplier integration can be identified: Lack of close working relationships with supplier due to more short-term oriented incentive system, and diminished competitive advantage due to decreased quality and flexibility. Bretzke stresses the statement that integrated performance will produce superior results over loosely managed individual functions and companies.67 The author argues that the price for integrated supply chains is the renunciation of the advantages of market mechanisms and competition between different suppliers. In Bretzkes’ point of view, the biggest advantages of loosely coupled systems are flexibility and speed of decisionmaking. Due to the increasing dynamic of the environment, cybernetic networks with the possibility to add and dissolve relationships as soon as needed will be the champignons of the future. Bask and Juga controversially discuss the contemporary strategy of supply chain integration.68 They argue that todays’ supply chains seem to move towards the opposite direction: disintegration, divergence and differentiation are trends that can be observed. In their opinion, growing competition, technological advancements and shortening product life cycles increase the risk that integrated systems and processes across supply partners are obsolete as soon as they have been created. In summary, the disadvantages of integrated suppliers are linked to certain risks that are contrary to the anticipated benefits of integration. These have to be evaluated in order to determine, if a particular vendor fulfills the buyers’ requirements. An overview of the risks, which have to be taken into account can be derived from different publications and are presented in Table 2. The presented disadvantages of supplier integration experience more and more attention in the recent years. Issues like decreased speed of decision making and inertia within a supplier-buyer relationship are reducing the expected relational rents. Furthermore, relation-specific investments can lead to a situation in which the buyer becomes dependent on a supplier. Those dependencies are problematic, as soon as one of the transaction partners is dissatisfied within the relationship and wants to exit.

66 Rossetti

and Choi (2005). (2005). 68 Bask and Juga (2001). 67 Bretzke


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Risks and disadvantages of supplier integration

Description

Selected literature

Management complexity and interface problems

Integration requires extensive management attention, due to problematic interfaces.

Bretzke (2005); Borys and Jemison (1989).

Decreased flexibility

Integrated supplier-buyer relationships experience a decrease in flexibility, since relational dependencies have been grown.

Park and Ungson (2001).

Financial risks

Integrated companies can face higher dependencies due to unilaterally investments in relationspecific assets.

Park and Russo (1996); Kogut (1989).

Neglected development of own capabilities

Managers can be extensively occupied with relationship coordinating activities. Furthermore, the believe in the suppliers’ capabilities may be so intensive, that the buyer neglects to develop own capacities and capabilities.

Miles and Snow (1992).

Unilaterally dependencies

Buyers with integrated suppliers can experience the disadvantages of dependency, that may lead to an unequal distribution of power.

Singh and Mitchell (1996); Larson (1991).

Bounded freedom of decision-making

Common planning- and control-activities can lead to a decrease of freedom of decisionmaking.

Bresser (1988).

Costly frictions due to different cultures

Different corporate cultures and languages do hinder collaboration between the transactionpartners and thus, prevent the generation of relational rents.

Park and Ungson (1997).

Unwanted know-how transfer

Knowledge and know-how are subject to unwanted information distribution.

Gulati (1995); Hamel (1991).

Growing monopoly suppliers

Due to a lack of competition in the supply base, suppliers are getting bigger an bigger and in the end they might be more powerful than the buyers.

Rossetti and Choi (2005).

Table 2: Risks and disadvantages of supplier integration.

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3 Disintegrating exit-strategies as a challenging management option in integrated supplier-buyer relationships 3.1 Motivations to supplier-buyer relationship disintegration

Different motivations to disintegrate a certain supplier can be distinguished. According to Verduijn five motives to exit a specific supplier-buyer relationship can be identified:69 • Insufficient sharing of new technologies due to a lack of the current suppliers’ innovative capabilities. • Unsuitable or impossible access to alternative components and services, due to complex specifications. • Suppliers’ capacity bottlenecks that are caused by strong variation of demand. • Price increases initiated by the current supplier or the identification of a new supplier with lower prices or a better cost / benefit ratio. • Poor quality delivered by the current supplier or the identification of a new supplier with a better quality / cost ratio. Another motivation to disintegrate a supplier and exit the relationship can have its roots in the risks of integration. The motivation to end the transaction relationship with a supplier will grow as soon as on of the risks, listed in Table 2, increases to an unbearable extend. The motives to change the supplier-buyer relationship settings have to be distinguished from the triggers, which are representing events that finally initiate actions towards voice or exit.70 The triggers do not necessarily present the reason why the relationship will be terminated.71 Basically seven triggers that are influencing a decision to exit have to be differentiated: quality decline, availability and attractiveness of alternatives, exit barriers (switching costs), likelihood of success of voice, perceived value of product and services, buyers loyalty, and strategic fit.72 The triggers and the motives to switch suppliers are related to dissatisfaction of the buying company. However, causes that are not combined with buyer’s dissatisfaction, like a supplier-driven exit, are out of scope of this paper. In order to explain the different motivations of companies to end a relationship with a supplier, a robust theoretical fundament is needed. Different economical, organizational, and social theories would be applicable and could provide explanatory power for the phenomenon of supplier disintegration. Since the research is related to an event, which affects two interacting business organizations, interorganizational theories, like transaction cost economics, agency theory, resource and relational based theories, as well as the resource dependency theory are valid. Since not all theories can be applied, we have 69 Verduijn

(2004), pp. 134. (2006a), p. 83. 71 Roos and Strandvik (1997), p. 17. 72 Lee (2002); Steward (1998); Hirschman (1970). 70 Hofmann


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selected (a) transaction cost economics73 and (b) the relational view74 as to be best fitting for our analyzing purposes, since: • The two theories deal with legally independent organizations that are exchanging resources. • They both focus on relationships and the way of doing business (governancestructure) instead of the exchanged resources. This is important, since even if an exchanged resource is still valuable for a buyer, the need for disintegration can come out of reasons that are anchored in the relationship or in the process of interaction respectively. • Both theories include supplier integration explicitly as a possible governmentstructure for a certain set of exchange relationships. Thus, they provide explanatory power for the environment of supplier integration, which is the focus of this article. Overall, the theories can be used to explain the reasons for supplier disintegration (e.g. due to high transaction costs or to less relational rents) and can be used as success dimensions for supplier disintegration or switching (e.g. less transaction cost or more relational rents as before). Due to the interaction of different organizations, theories about power and dependencies like (c) the social exchange theory75 can help to provide further insights. This theory is especially helpful, since it analyses different relationship-settings and provides insights about why sometimes even bad performing relationships will resist. It moreover focuses on how interaction patterns are shaped by power relationships, and the resulting efforts to achieve balance in exchange relations. All three theories can help to explain the need of close interconnectedness and supplier disintegration, but provide even more explanations when used jointly. a) Transaction cost economics Transaction cost economics theorizes on the decisions regarding the optimal organization of economic activities and boundaries of the firm. In general, it answers why companies either make or buy.76 As stated in chapter 2.1 transactions between suppliers and buyers can be coordinated by markets on the one, and hierarchies on the other side. Marked forms of governance rely on prices, competition and contracts to coordinate the transaction. Hierarchical governance refers to a situation, where the transactionpartners are under a joint control and thus, it relies on direct instruction of the involved transaction-partners.77 The objective of the transaction cost theory is to minimize the transaction costs. Transaction costs are a combination of production cost and transaction 73 E.g.

Williamson (1975). Dyer and Singh (1998). 75 Thibaut and Kelley (1959). 76 Barney (1999), pp. 138; Pessali and Fernandez (1999), pp. 268; Wilding and Humphries (2006), pp. 313. 77 Barney (1999), pp. 138. 74 E.g.

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cost (see chapter 2.1). Variations in transaction cost may be a cause of the interplay between environmental and behavioral factors that have an impact on uncertainty and asset specificity. Environmental factors refer to changes in the transaction context that are leading to uncertainty, which cannot or just hardly be influenced by the transactions partners, like political risks or new technologies of competitors. Behavioral factors do refer to bounded rationality and an opportunistic attitude. Bounded rationality means that those who are engaged in economic exchange intend to be rational in their decisionmaking, but are limited to do so. This is due to the fact, that the human mind is not capable enough to analyze and solve the complex problems of our real world78 and information is not equally distributed between the exchange partners. This leads to the problems of information-asymmetries.79 Information-asymmetries can lead to opportunistic behavior that refers to a lack of candor or honesty in transactions and includes self-interest seeking with guile.80 If the exchange-partners have implemented specific investments in the transaction that are only valuable in the context of the particular relationship and have little or no value in any other transaction the threat of opportunism is amplified. To reduce the risk of opportunism, companies can either seek safeguards to protect their specific investments or can try to increase transparency within the particular exchange in order to increase the monitor-ability and thus, prevent the other party of acting opportunistically. Safeguards are mainly of contractual nature and have to be negotiated. The more complex the supplier-buyer relationship is the higher will be the transaction costs. However, in todays’ dynamic environment with its specialized companies, buyers often prefer the threat of opportunism and high transaction cost since a hierarchical solution would be to expensive or even more risky.81 Furthermore, since the nineties of the last century, the concept of trust has been intensively discussed as a possible safeguard which can reduce uncertainty and transaction-cost at the same time.82 Transferring these theoretical implications to the drivers of supplier-buyer relationship disintegration and exits, it can be stated that an integrated transaction-relationship will be terminated, as soon as the transaction cost in this particular exchange relationship are not competitive any more. This can be a result of insufficient trust, which increases the need of transaction-cost extending monitoring activities or contractual safeguards. Another reason can be the increased environmental uncertainty that makes the context of the supplier-buyer relationship unattractive. Furthermore, the need to increase the value of specific investments, which would increase unilateral dependency, is another reason, to exit the relationship and switch to another supplier. These reasons show the explanatory power of transaction cost economics for the motivations of disintegration 78 Simon

(1957). more details see: Wenger and Terberger (1988), p. 507; Spremann (1990), pp. 568; Picot and Neuburger (1995), Sp.16; Barth (2003), p. 98. 80 Williamson (1975). 81 Barney (1999), pp. 144. 82 E.g. Ripperger (1998). 79 For


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and relationship ending. However, the listed causes are not comprehensively and need to be further analyzed. b) Relational based-view of strategy Another theory, which we will take into account to expalin pressures to change or exit a supplier-buyer realtionship is the relational view.83 We have already addressed this theory in chapter 2.1 in connection with the relational rent-seeking behavior of companies. We described the potential of gaining a relational rent as one main driver of supplier integartion. In order to avoid redundancies, we again just take up the key-elements of this theory to portray its explanational power for supplier-buyer relationship exit. In perspective of the resource based view, idiosyncratic linkages between companies may be sources of relational rents and competitive advantage. These rents are jointly generated and rent-producing specific assets are owned by the partnering firms. Relational rents flow when the exchange partners invest in relationship-specific assets, develop interfirm knowledge sharing routines, employ effective governance mechanisms, and exploit complementary capabilities.84 Especially four dimensions can be identified that preserve relational rents generated by exchange partners:85 inter-organizational asset interconnectedness, partner scarity, resource indivisibility, and the institutional environment. In analogy, if one or more of these mechanisms weaken or dissappear the relationship becomes instable and finnally, one partner may deside to exit the liaison. The interconnectedness of relationship-specific assets provides rents that can only be realized within the existing relationship. If specificity decreases, for example due to technological advances, the ease to leave the relationship is increased. The creation of relational rents is related to the firms’ ability to find a exchange partner with compelmentary strategic resources and relational capabilities. Due to the required idiosyncray of rent-creating relationships, fitting supliers are difficult to find. Thus, the more alternative suppliers with matching ressources are available, the more unstable becomes relationship and movements towards disintegartion may occur. Resource indivisibilities may make it impossible for partners to leave the relationship and start on their own and thus, prevent dissolution tendencies. Finally, the institutional environment may foster and encourage trust among the trading partners supporting the creation of positive social linkages. These linkaged lead to a solidification of the relationship. The opposite may be the case, if cultural differences or political turbulences are leading to distrust. In general it can be stated, that relationships can become unstable, as soon as the potential for the creation of relational rents detoriates. This can happen either in comparison to the past of the particular relationship or in comparison to available relationships.

83 Dyer

and Singh (1998); Lavie (2006). and Singh (1998), pp. 660. 85 Dyer and Singh (1998), pp. 671. 84 Dyer

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c) Social exchange theory The third theory can be used to explain the motivations for relationship exit. Social exchange theory has been created at the intersection of social psychological and sociological perspectives and explains social change and stability as a process of negotiated exchanges between parties. It posits that all human relationships are established, lived and terminated by the use of a subjective cost-benefit analysis and the comparison of alternatives.86 In general, the social exchange theory provides an understanding about the “clear conception of the material and resource basis of social action”87 and thus, it is “well-suited for grasping material/extrinsic exchange”.88 The interaction between buyers and suppliers results in various ways, the exchange partners can modify their resources to each others expectations. Power explains the relation of the actors and can be defined as the opportunity to influecne the outcome of a related party.89 In the social exchange theory, power is the property of a relation and not of an actor, because it resides implicitly in the others’ dependency.90 The dependency of the buyer directly increases with the value of the received resources from the supplier and varys inversely with a comparison of the value of alternative exchange relations.91 Power can be primarely derived from resource dependency of the exchange partner, however, considering a network of potential (but maybe not possible to use) transaction partners, power also results from the structure.92 In the social exchange theory, actors that are involved in an exchange, evaluate their outcome of the relationship along two dimensions. The first dimension is the comparison level (CL). This is the threshold above above which an outcome seems to be attractive.93 If the outcome is satisfying depends on the ex ante expectations. The second dimension is called the comparison level of alternatives (CLalt ) and is related to the best payoffs available outside the current relationship. CLalt is the worst outcome one of the partners would accept and still stay in the current exchange relationship, due to a lack of better alternatives. As soon as more attractive suppliers become are identified, or the current supplier slides below an established CLalt , insability increases. The following Table 3 outlines the possible outcomes of a supplier-buyer relationship: These six typologies can be applied for supplier-buyer relationships and can explain, when instability in a relationship may occure and how the exchange-partners will react to it. On the perspective of the buyer, the company will quit the relationship, as soon as the outcome is not satisfying anymore, another better alternative is available, and no insurmountably dependencies do exist. 86 Thibaut

and Kelley (1959), pp. 10. (2000), p. 688. 88 Stolte et al. (2001), p. 411. 89 Thibaut and Kelley (1959), p. 101. 90 Emerson (1962), pp. 32. 91 Emerson and Cook (1972), p. 64. 92 Cook (1977). 93 Thibaut and Kelley (1959), pp. 81. 94 Adapted from: Roloff (1987), p. 87. 87 Cook

Supplier integration and the challenging combination with relationship-exit strategies Relative value of outcome; CL, CLalt

State of the relationship

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Outcome > CL > CLalt

satisfying, stable, dependent

Outcome > CLalt > CL

satisfying, stable, nondependent

CLalt > CL > Outcome

not satisfying, break relationship, happy elsewhere

CLalt > Outcome > CL

satisfying, unstable, happier elsewhere

CL > CLalt > Outcome

not satisfying, break relationship, continue unhappy

CL > Outcome > CLalt

highly unsatisfying, can’t break away, dependent and unhappy

Table 3: Six relational typologies within the social exchange theory.94

3.2 Exit, voice, and loyalty strategies as responses to supplier’s weaknesses

In the perspective of the buyer, dissatisfaction emerges as soon as a negative difference between required and available capabilities of the supplier is recognized, and if this performance-gap cannot be closed in a timely manner and to competitive costs.95 According to Hirschman, buyers that are facing the described situation can choose between three generic approaches, called “exit-”, “voice-”, and “loyalty-strategy” to improve the supply situation.96 The loyalty strategy describes a situation in which no action for improvement will be started or even tried and the low performance of the supplier will just be accepted, which thus reflects a passive attitude of the buying firm. The voice option describes an approach, where the purchasing company works cooperatively with the original supplier until the reasons for dissatisfaction are eliminated. In this paper we want to concentrate on the exit option, in which the purchasing company decides to find a new supplier. Hirschman’s concept of exit, voice, and loyalty (EVL) has been utilized in social psychology to explain relationship termination and resistance and has been used to categorize the responses of adults to dissatisfaction in “romantic” involvements.97 Furthermore, the EVL framework has also been utilized in consumer marketing and supplier management literature on relationship termination.98 Fundamentally two different variants of reactions on a supplier weakness can be distinguished: A buyer may either continue with the relationship or break up the relationships. The loyalty strategy is the weakest possible form of a reaction to a supplier weakness, since no action will be started. The buying firm will keep its bad performing supplier and just accepts the current output level. In other words, the buyer keeps being loyal, no matter what has happened and does not even try to improve the situation. The loyalty strategy will be out of the scope of the 95 Simatupang

and Sridharan (2005), pp. 349; Verduijn (2004), p. 133. (1970). 97 Giller and Matear (2001), p. 96. 98 E.g. Helper (1990); Helper (1991); Michalski (2004). 96 Hirschman

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research, because of its little practical relevance. The voice strategy refers to a situation in which the relationship will be continued but certain adoptions will be made. The supplier will be confronted with a possible end of the relationship in the case that the situation will not improve. In general, the current supplier-buyer relationship can be continued with or without an additional supplier. The voice strategy without an additional supplier can again be divided into two options. The buyer can either try to adjust the suppliers’ performance or the buyer adjusts the requirements of the exchange relationship according 1: The exit, voice, and loyalty framework within supplier-buyer relationships. to aFigure negotiation process. The first alternative is frequently combined with instruments and methods of supplier development initiatives. Absolute or relative supplier weakness

Exit strategy

Switch to an internal source

Insourcing

Switch to an external source

Supplier switching

Voice strategy

Additional supplier

Supplier splitting

Loyalty strategy

No additional supplier Adjusting suppliers performance

Adjusting requirements

Supplier development

Outsourcing correction

No additional supplier

Accept performance

Figure 1: The exit, voice, and loyalty framework within supplier-buyer relationships.

The advantage of this option of performance improvement is the absence of supplier switching costs. On the other hand supplier development initiatives are always combined with a financial investment of the buyer. Furthermore, a time lag will occur since improvements need some time to unfold their whole effect. The second alternative, the adjustment of requirements, is basically an accepted decrease of the suppliers’ performance and thus, an ex post correction of the terms and conditions of the transaction relationship will be negotiated. The voice strategy with an additional supplier refers to a situation in which the extent of the exchange will be split up between the existing and a new supplier. This variance of the voice strategy can be considered as a first move towards supplier switching. The advantage of this alternative is the utilization of the capacity and knowledge of more than one supplier. On the other hand, this alternative is combined with an increase of coordination effort and thus, transaction costs. The exit strategy is a prerequisite for supplier switching, since the relationship to the


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old supplier will be terminated and the relationship to the new supplier will be started. Within this strategy one has to distinguish between an internal and an external new source of supply. The first case is often described as insourcing, which can be defined as the internalization of former externally performed tasks into the own organization. In the other case, the old supplier will be substituted by a new one. This strategy can be recommended, as soon as alternative suppliers offer similar products or services with a better cost / benefit ratio. However, switching of integrated suppliers is combined with switching cost and ex ante uncertainty about the new suppliers’ real performance. Thus, supplier switching is combined with certain challenges, which will be further described in the next paragraph. 3.3 Challenges of supplier-buyer relationship exit strategies

Supplier switching will be initiated by a trigger, which is a negative change in parameters that are affecting the supplier-buyer relationship. Not all triggers automatically lead to supplier switching, since there is a wide agreement that important supplier-buyer relationships deserve ample warning or even assistance over a certain period of time. Another factor which is preventing mangers from switching suppliers is a consideration of their personal situation in the company. A decision to switch to a new source of supply, which is not really better or even worse than the old supplier, might be a “career-killer”.99 Thus, decision makers can be better off, if they change nothing and try to improve the situation with the current supplier. These circumstances can cause a situation in which the buyer experiences a long phase of reduced supplier performance and hence a performance gap occurs. In the case of supplier switching the performance gap can even broaden due to disruptions in the switching phase. The unpredictability of the extent of the performance gap is one major barrier of supplier switching. Other barriers can be identified that are preventing a buying company to leave a not satisfying supplier.100 A bias towards existing suppliers can appear when employees or certain functions within the buying company want to stay with the old supplier due to positive experience in the past business or social relationship. Internal power structures can be a difficult barrier to supplier switching as well. For example if conflicting interests of different departments exist. Inertia can be observed as a barrier, since employees are used to the way of doing business with the old supplier and do not want to change their processes. Personal linkages, which have been developed between the buyer and suppliers employees are making supplier switching difficult. Lack of information that makes the real performance of a potential new supplier hard to predict and the complex task structure of the replacement process are further barriers. Opportunistic behavior of the old supplier as soon as 99 Ahmadjian

and Lincoln (2001), pp. 695. following barriers are related to: Alajoutsijärvi et al. (2000); Vaaland (2004); Michalski (2004); Verdujin (2004).

100 The

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the termination of the exchange relationship is announced may cause further troubles that can make things even worse. Other important barriers for supplier switching are specific investments of the buyer (and the supplier) which will turn into sunk costs if the relationship will be terminated. Thus, as asset specificity decreases, switching becomes easier and vice versa.101 Figure 2: Schematically a supplier decision. In general it can be stated description that switchingof suppliers usuallyswitching leads to additional costs.102 Consequently, a process to reduce the cost of supplier replacement can help companies to use potentially better suppliers. This can be visualized as suggested in Figure 2.

Cumulated value of supplier-buyer relationship Relative positive rents of new supplier

New supplier

Initial costs of the development of the old supplier

Initial supplier replacement cost

Old supplier 1

Time

2

Relative negative rents of new supplier

Time to new supplier superiority

Figure 2: Schematical description of a supplier switching decision.

Figure 2 schematically shows the dimensions “time” and the “cumulated value of supplier-buyer relationship”. The last dimension is a more theoretical construct, but it is useful to explain the anticipated impact of an improved supplier switching process. The cumulated value of a supplier-buyer relationship can either be calculated according to the supplier-lifetime-value concept,103 or can be regarded as relational rent, which is generated through an intensive collaboration between a buyer and a seller. The drawn course of two curves is just one possible way of feasible other courses. 101 Mikkola

and Skjøtt-Larsen (2004), p. 38. et al. (2005), p. 120. 103 For further details see Eßig (2003); Stölzle and Kirst (2006). 102 Arnold


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The figure illustrates an old supplier with a relatively flat increasing value curve and a new supplier with a relatively steep increasing value curve. This means that the new supplier is potentially adding more value per time than the old supplier. However, the new supplier has to be established and a costly ramp-up phase may occur. This leads to initial replacement costs (number 2), which result in a negative cumulated value of the new supplier-buyer relationship in the early stage. On account of the ramp-up phase, the new supplier does not have its full value-adding potential but the pace of value generation is increasing over time. Thus, it is important to strongly support the new supplier in the early phase in order to increase its value adding capabilities as fast as possible. To decide whether the new or the old supplier is the better supply partner, the outcome of a supplier development (voice) initiative with the old vendor or a switch to a new supplier has to be compared. The cost of a supplier development initiative (number 1) leads to an initial negative cumulated value for the old supplier-buyer relationship as well. The value which has been created from the old supplier in the past is not considered anymore. If the two curves of the old and the new supplier-buyer relationship are compared, it can be stated that in the short term the buyer will be better off with the old supplier, since a switch will eliminate value and thus the old supplier would be preferred. But in the long run the situation will change and the new supplier will generate more value per time unit and finally outstrips the old vendor. To quicken this process is an important task for the involved managers. It is conceivable that – for example – methods of simultaneous engineering, like the parallelization of processes can help to achieve substantial timesavings. Besides this, other instruments and methods may exist, which can contribute to an improvement of the switching process. This introduces the concept of supplier switching management. Research on supplier switching management can contribute in two fundamental ways to improve the described situation. Supplier switching management can reduce the supplier replacement cost, which would lead to a smaller initial investment (number 2 would be shorter) or can decrease the time to new supplier superiority. The new supplier will be relatively and absolutely superior in comparison to the old supplier, as soon as its cumulated value and its pace of value creation are higher than the ones of the old supplier. Taking this into account the main challenges of research on supplier switching management is to help disengagers to reduce the time to “new supplier superiority”, and reduce the cost of “supplier replacement.” in order to achieve a competitive advantage. The relationship between supplier switching management and competitive advantage can be described as follows: First of all the number, of potentially attractive and selectable suppliers will increase because reduced cost and time improvements in the switching process are expanding the possibility to utilize suppliers, which have not been selectable before. The increased number of potentially suppliers equals a raise of possible management options. This again, is amplifying the flexibility of supply relationships, which

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accordingly increases the overall flexibility of the buying company: the disengager. In turn, increased flexibility can lead to a competitive advantage. It is central to mention that the concept of switching should not substitute supplier integration but can upgrade and enhance supplier-buyer relationships. With other words the challenge can be described as increasing relationship flexibility without sacrificing relational rents. 4 Further research and management implications

Concluding, it can be stated that current rigid supply chains seem to struggle with the dynamic of the environment.104 Frequent changes of customer preferences and demand as well as dynamic political and economical conditions do pressurize companies to continuous adjustments. If a company is embedded into integrated supply relationships the impact of adjustments at other supply partners have to be taken into account as well. Thus, more time is needed due to an extended decision-making process, which in turn reduces a companies’ flexibility and may decrease its competitive capabilities. This trade-off between the opportunity to gain relational rents in integrated supplier-buyer relationships on the one side, and decreased flexibility on the other side has to be taken into account by an evaluation of the outcome of close relationships. In order to systematize the drivers for integration and disintegration, transaction cost economics, the relational view, and the social exchange theory have been taken into account. All three theories can deliver theoretical explanations for supplier-buyer relationship instability and the initiation of the dissolution process. Transaction cost economics explains supplier-buyer relationship instability through increased transactioncost that lead to a misfit of the chosen governance-structure or the chosen supplier. Following the relational view, pressure to improve the supplier-buyer relationship or exit it, comes from insufficient relational rents. The third approach which has been used to explain instability in supplier-buyer relationships is the social exchange theory. It emphasizes the importance of satisfaction in comparison to the realized outcomelevel of the relationship (CL) and the possible outcome-level in another relationship (CLalt ). Dissatisfaction and thus, instability arises as soon as the outcome of the current relationship is smaller than a satisfying outcome and better alternatives do exist. According to Hirschman a company has basically three fundamental reaction options if instability arises due to increased transaction cost, decreased relational rents, or reduced satisfaction. Taking a buyers perspective, one can do nothing to improve the exchange relationship and just accept a suppliers weakness (loyalty strategy). Another option is to frankly address the concerns about the supplier and mutually try to improve the situation. The (last) option would be to exit the relationship and switch the supplier. The last option leads to further research opportunities, since research on supplier-buyer 104 Verduijn

(2004), p. 4.


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relationship dissolution and switch seems to be underrepresented in scientific and practical literature. This becomes even more obvious, if the quantity of publications to supplier development (voice strategies) is compared to the amount of publication to relationship dissolution and switch. In the field of supplier exchange, the switching-process is of main interest. Research of supplier switching processes can aim on the prevention of performance-gaps during the transition from the old to a new supplier. Thus, the objective of research on supplier switching processes is to reduce switching costs and the time to new suppliers superiority (see Figure 2). First approaches of research on supplier switching processes can be derived from the three presented theories. For example they can provide possible success dimensions for the switch: Transaction costs in the transition phase have to be reduced, relational rents need to be created with the new supplier, and an optimal switch would be one, where every involved party is satisfied. In order to develop this filed of research explorative studies are required to get an improved understanding of the complex problem. The analysis of “real” supplier switches in case study research would be of great use to sharpen the practical and theoretical relevance of the topic. As far as management-implications are concerned, we can postulate that it is important to consider the pitfalls of supplier integration. The undifferentiated “romantic” view on cooperation with suppliers neglects the possibility of flexibility reduction and performance weakness due to a lack of market pressure. If problems like this arise, closely integrated suppliers are hard or even impossible to switch. This may be due to unilateral dependencies of the buyer. In order to avoid those problems the end of the supply relationship has to be anticipated from the very beginning and exit options have to be fixed in contractual agreements. Furthermore, through an active supply market research, alternative suppliers have to be identified and systematically developed in order to avoid unilateral dependencies. However, if an integrated supplier has to be switched a professional and structured supplier switching management is required in order to achieve a “smooth switch” for all involved actors. 5 References Anderson, J.; Rungtusanatham, M.; Schroeder, R. (1994): A theory of quality management underlying the Deming method, in: Academy of Management Review, Vol. 19, 1994, Issue 3 , pp. 472–509. Arnold, U.; Eßig; M. (2000): Sourcing-Konzepte als Grundlage der Beschaffungsstrategie, in: WiSt – Wirtschaftswissenschaftliches Studium, Vol. 29, 2000, Issue 3, pp. 122–128. Arnolds, H.; Heege, F.; Tussing, W. (1996): Materialwirtschaft und Einkauf praxisorientiertes Lehrbuch. 9. Ed. Wiesbaden 1996. Artz, K.W. (1999): Buyer-supplier performance: The role of asset specificity, reciprocal investments and relational exchange, in: British Journal of Management, Vol. 10, 1999, Issue 2, pp. 113–126. Barth, T. (2003): Outsourcing unternehmensnaher Dienstleistungen. Frankfurt a.M. 2003.

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