Financial Dependence, Lean Inventory Strategy, and Firm Performance

Abstract

We conduct an empirical investigation of the impact of focal firm and supplier financial dependence on focal firm financial performance using the lens of resource dependence theory. We further investigate the moderating impact of dependence asymmetry on the relationship between lean inventory strategy and focal firm financial performance. We use an innovative supply chain structure data set provided by Bloomberg, which allows implementation of unique measures for focal firm and supplier financial dependence within a supply chain. The results of an analysis of 3,638 buyer–supplier relationships provide support for the hypothesized direct effects of focal firm financial dependence and supplier financial dependence on firm financial performance. Our results also support our hypothesis regarding the moderating effect of dependence asymmetry on the relationship between lean inventory strategies on financial performance. These findings both improve our understanding of the impact of dependence on focal firm performance and shed light on the heretofore unstudied impact of dependence asymmetry's effect on the efficacy of lean inventory strategies.

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

“…Supplier dependence upon major customers is calculated by using the Herfindahl‐Hirschman (HH) Index measure at the supplier firm level. Following prior research (Elking et al, 2017; Tangpong et al, 2008), we initially computed the percentage of a firm's total sales to each major customer. The formula of the Herfindahl index measure is shown below.…”

“…Supplier dependence refers to the extent to which a supplier is dependent upon a major customer in terms of financial resources (Elking et al, 2017; Patatoukas, 2012; Tangpong et al, 2008). This dependence results from a major customer's control of resources that its supplier values but cannot obtain (Feldman, 2016).…”

“…First, firms often do not recognize the existence of the non‐mediated sources of power (Pulles et al, 2014), which means that we might not be able to measure or control for the sources. Second, non‐mediated sources of power have been largely discussed in prior studies that employed survey methodologies (Elking et al, 2017). Power asymmetry provides a major customer with the ability to use threats and punishments (Lumineau and Malhotra, 2011) to influence the behaviors and decisions of dependent suppliers (Reimann et al, 2017).…”

“…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.…”

Power in Supply Chain Management

“…In the STF's second article, Elking, Paraskevas, Grimm, Corsi, and Steven () explore how power asymmetry may adversely affect buyer–supplier relationships. Building on a dataset covering over 3,600 buyer–supplier dyads, they investigate how financial dependence in the dyad influences inventory leanness and financial firm performance of the involved firms.…”