Supply Networks for Relational Sourcing

Elena Belavina

The University of Chicago Booth School of Business

Karan Girotra

INSEAD - Technology and Operations Management

January 7, 2014

INSEAD Working Paper No. 2014/03/TOM

Socially responsible sourcing has become a necessity for many global firms and a competitive advantage for others. Sourcing strategies based on social responsibility now increasingly employ long-term commitments (relational sourcing). This study examines the role that supply network configuration plays in the efficacy of relational sourcing in ensuring socially responsible behavior across the supply network (compliance). Our analysis reveals that, irrespective of the supply network’s topology (star or linear), the effectiveness of relational sourcing can be assessed via two aggregate network metrics: the relational potential (gain in total network profits from relational sourcing) and the exploitation potential (sum of the gains that individual players could earn by unilaterally reneging on the relational agreement’s terms while others abide by them). We characterize the preferred supply network for different product types and find that so-called high-degree networks are more suited for products with stable sourcing, higher margins, higher probabilities of detecting noncompliance, significant damage from any noncompliance, and modest compliance costs. Firms that market products with such characteristics are better served by relational sourcing arrangements featuring suppliers that are comparatively more specialized. Our results apply also to linear networks and are robust to several extensions, including various equilibrium concepts and supplier asymmetry.

Number of Pages in PDF File: 47

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Date posted: January 7, 2014 ; Last revised: January 9, 2014

Suggested Citation

Belavina, Elena and Girotra, Karan, Supply Networks for Relational Sourcing (January 7, 2014). INSEAD Working Paper No. 2014/03/TOM. Available at SSRN: http://ssrn.com/abstract=2375663 or http://dx.doi.org/10.2139/ssrn.2375663

Contact Information

Elena Belavina (Contact Author)
The University of Chicago Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
+1 773 834-3038 (Phone)
HOME PAGE: http://www.chicagobooth.edu/faculty/bio.aspx?person_id=49970841600

Chicago Booth School of Business Logo

Karan Girotra
INSEAD - Technology and Operations Management ( email )
Boulevard de Constance
77 305 Fontainebleau Cedex


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