Supplier price concessions: A longitudinal empirical study
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Supplier price concessions: A longitudinal empirical study John W. Henke Jr. & Sengun Yeniyurt & Chun Zhang
Published online: 15 May 2008 # Springer Science + Business Media, LLC 2008
Abstract The competitive nature of today’s business-to-business markets requires companies to continually look for ways to reduce costs; one of the easiest of which is to demand price reductions from suppliers. In this research, price reduction demands and the corresponding concessions given by 238 suppliers to the six major North American Automotive original equipment manufacturers during 2001–2007 are analyzed utilizing a simultaneous equation model. The three stage least squares estimates indicate that suppliers are willing to give higher price concessions when buyers align specific interfacing characteristics and processes with their suppliers so that the suppliers perceive greater opportunities for future business and profit. These results provide, for the first time, an understanding of the dynamic nature of the impact of buyer–supplier relational components on supplier price concessions. Keywords Buyer–supplier relations . Buyer price reduction pressure . Supplier price concessions . Supplier product development involvement Today, more than ever, the competitive nature of business-to-business markets demand that companies in these markets continuously look for ways to reduce their
The authors are grateful for the partial funding received for this research from the MIT International Motor Vehicle Program. J. W. Henke Jr. School of Business Administration, Oakland University, Rochester, MI 48309, USA S. Yeniyurt School of Business, Rutgers University, Piscataway, NJ 08854, USA C. Zhang School of Business Administration, University of Vermont, Burlington, VT 05405, USA J. W. Henke Jr. (*) 1035 South Adams Road, Birmingham, MI 48009, USA e-mail: [email protected]
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Market Lett (2009) 20:61–74
costs. One means by which companies achieve lower costs quickly and relatively painlessly is to pressure their suppliers for lower prices. This approach to achieving lower costs has been used for decades and continues today in numerous industries including automotive (Sherefkin 2006), retailing (Maremont and Berner 1999), and electronics (Carbone 2005). On the other hand, more insightful and strategicallyoriented buyers and suppliers have taken a collaborative approach to achieving lower supplier prices (Williamson 1996; Jap 1999; Cannon and Homburg 2001). While there is a growing understanding of the conditions that impact cost reductions and profit sharing in buyer–supplier transactions (Noordewier et al. 1990; Srivastava et al. 2000; Cannon and Homburg 2001; Ghosh and John 2005; Mantrala et al. 2005), little is known about how suppliers respond to price reductions asked of them by buyers under different relational conditions. To add to this dimension of the literature, this research conducts an empirical test of the determinants of supplier price concessions given in response to buyer price reductions asked using 1,659 buying situations
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