How Supplier Economies of Scale Drive Supplier Selection Decisions

Abstract

Supplier selections are complex but nonetheless strategically important decisions that are influenced by numerous factors. Drawing on the resource‐based and relational view of the firm, we investigate how suppliers’ economies of scale influence the buyer's selection decision, and we illustrate how the influence of scale is contingent upon important economic, buyer, and relationship characteristics. We test the model with a large secondary dataset of actual supplier selection decisions from the automotive industry and show that economies of scale have a strongly positive but diminishing effect on the buying firm's supplier selection decision. These effects are reinforced or extenuated by economic, buyer, and relationship characteristics, with characteristics that are more specific to the buyer‐supplier situation (e.g., relationship duration and power balance) having a stronger moderating effect than do characteristics that are more global (e.g., economic cycle). Our research helps suppliers to better understand how to manage selection probabilities with buyers and provides buying firms with a better understanding of how contextual factors affect the benefit of supplier‐provided economies of scale.

Editorial Commentary: Addressing Confusion in the Diffusion of Archival Data Research

“…To make a broader generalization, it would be important to effectively argue that the theoretical mechanisms that bring about the observed relationships in the current sample also likely hold outside the sampling frame. As an example, a recent study by Badorf et al (2019) used RBV to examine how economies of scale influence the supplier selection decision, contingent on several moderating variables that serve as boundary conditions. Although they used a secondary database exclusive to the automotive industry, they cautiously note the same results could be generalizable to other industries.…”

Selecting Startups as Suppliers: A Typology of Supplier Selection Archetypes

“…The supplier selection literature shows that selection decisions have significant implications for firms (e.g., Badorf, Wagner, Papier, & Hoberg, 2019; Kannan & Tan, 2002). To test our proposition that Systematic Selectors select more suitable new venture suppliers, future research should choose a longitudinal design to investigate whether Systematic Selectors ’ buyer–supplier relationships are more successful than those of other archetypes.…”

An Assessment of Inventory Management Practices at the Hospitality Management Department of Takoradi Technical University

“…Whether in manufacturing, distribution, retail, or utilities, the basic aim of inventory analysis is to determine (1) when goods should be ordered and ( 2) how bulky the order should be. Badorf et al (2019), identified five factors for stock holding: Economies of scale; maintaining inventory allows a company to achieve economies of scale in production, buying, and transportation. When a company buys in bulk, it receives volume discounts.…”

“…In periods of high inflation or as a deliberate strategy of speculation, elevated setup costs, for example, support manufacturing a higher number of units after the setup has been made and protect against anticipated shortages and price rises. Flow-through warehousing, according to Badorf et al (2019), aims to reduce inventory keeping (carrying) costs increasing the pace at which finished products are distributed.…”