Concentrated supply chain membership and financial performance: Chain‐ and firm‐level perspectives

Abstract

This study reports evidence that concentrated 3‐firm supply chains achieve superior financial performance, and that supply chains’ financial performance varies systematically with measures of chain concentration and chain duration. Results from firm‐level analyses suggest that the profitability benefits of supply chain relationships are captured predominantly by downstream chain members, whereas cash cycle benefits are realized throughout the supply chain. Firm‐level tests also reveal that chain members’ financial performance varies systematically with measures of downstream bargaining power, downstream relationship duration, and degree of supply consolidation. The study's chain‐ and firm‐level analyses employ data extracted from sample firms’ publicly available financial reports, including their major customer disclosures under Statement of Financial Accounting Standards Nos. 131 (1997) and 14 (1976).

Supply Chain Power and Real Earnings Management: Stock Market Perceptions, Financial Performance Effects, and Implications for Suppliers

“…Table presents descriptive statistics, with continuous variables winsorized at the 1st and 99th percentiles. Panel A shows that major customers are larger and more profitable than nonmajor customers, consistent with prior research (e.g., Gosman et al., ; Lanier et al., ). Compared to nonmajor customers, major customers have (on average) higher market capitalization ($13.2 billion versus $1.3 billion), total assets ($11.4 billion versus $1.2 billion), total sales ($11.4 billion versus $1.2 billion), net income before extraordinary items ($652 million versus $59 million), and cash flows from operations ($1.5 billion versus $142 million)…”

“…Gosman, Kelly, Olsson and Warfield () find that major customers achieve unusually high profitability, profitability persistence, and market valuations. Lanier, Wempe and Zacharia () find that supplying firms’ financial performance is inversely associated with the level of their dependence on major customers, whereas Patatoukas () reports a positive correlation between customer concentration and profitability. Kalwani and Narayandas () document that major customers’ suppliers reduce costs through better inventory management, but that major customers extract extraordinary savings from suppliers via lower prices.…”

Customer and Supplier Portfolios: Can Credit Risks be Managed Through Supply Chain Relationships?

“…A more concentrated base of customers and suppliers appears to lead to embeddedness, which improves performance (Lanier et al. ; Kim and Henderson ). Part of the performance improvement appears to stem from increased efficiencies, particularly in inventory deployment (Ak and Patatoukas ).…”

Exploring linkages among external integration, supply chain risk reduction and performance outcomes: a study with Brazilian companies

“…Droge et al (2004), Green Jr. et al (2008), Lanier Jr. et al (2010, Wagner et al (2012) explorations of linkages between SCR and other strategies, are still very limited (Manuj and Mentzer, 2008). Scholars have demonstrated the importance of researches on supply chain risk in Brazil (Rosales et al 2012), a center and very important player in many global agribusiness supply chains.…”

“…The measurement items of risk reduction were operationalized by five sets of attributes: (1) reprogramming of production or disruptions of planning (Tang and Tomlin, 2009); (2) demand fluctuations due to sales promotions, order batching, and price (Wagner and Bode, 2009); (3) insufficient or distorted information from customers about orders and disruptions in the physical distribution of products (Wagner and Bode, 2009); (4) capacity constraints and threat of financial instability of suppliers (Zsidisin, 2003), and (5) supplier quality problems and poor information sharing (Wagner and Bode, 2009). Market, operational, and financial performance was measured using items adapted from (Droge et al, 2004;Devaraj et al, 2007;Nyaga et al, 2010;Lanier Jr. et al, 2010).…”