Abstract

http://ssrn.com/abstract=2375663
 


 



Supply Networks for Relational Sourcing


Elena Belavina


The University of Chicago Booth School of Business

Karan Girotra


INSEAD - Technology and Operations Management

April 22, 2015

INSEAD Working Paper No. 2015/33/TOM

Abstract:     
Making long-term commitments to exclusive suppliers, or relational sourcing, is critical in industries where quality includes social, ethical, and technical elements concerning which contractual terms would be difficult to write and enforce. This study identifies supplier network topologies that best facilitate such relational sourcing. We consider a brand-owning firm that sources in an ongoing fashion from a general multi-tier network of idiosyncratic suppliers. Alternate network designs are compared in terms of three defining structural properties: network scope, the number of suppliers at each tier in the network; degree of control/delegation, the number of tiers in the network; and network connectivity, the connections between firms located at different tiers. Our analysis reveals that neither network connectivity nor the distribution of costs among suppliers affects the ability of relational sourcing to ensure compliance. Networks characterized by more delegation or less scope benefit the most from relational sourcing, yet such networks often feature more exploitation opportunities which work against relational sourcing. We show that, all else equal, delegation is better than control for products with higher margins, greater sourcing stability, or lower costs of noncompliant quality. Numerical analysis reveals that low-scope networks, too, are preferable for higher-margin products with greater sourcing stability; however, low-scope networks are preferred at higher costs of noncompliant quality. These results are robust to alternate information environments and equilibrium concepts.

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Date posted: January 7, 2014 ; Last revised: April 23, 2015

Suggested Citation

Belavina, Elena and Girotra, Karan, Supply Networks for Relational Sourcing (April 22, 2015). INSEAD Working Paper No. 2015/33/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

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

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