December 13, 2012
Little could Neil Clark have ever guessed that chopping chunks of chicken would help lead to an educational epiphany.
Yet for the second-year MBA student at Indiana State University, his culinary career provided a real-life lesson into business research about buyer-supplier business relationships.
Clark and Kuntal Bhattacharyya, assistant professor of operations and supply chain management, presented their research on supplier perspectives in business relationships at the 43rd annual meeting of the Decision Sciences Institute in San Francisco in November. Their research focuses on the increasing strength that suppliers have in business transactions and relationships, as many large and multinational corporations have consolidated their suppliers, even as their businesses have grown.
"What's happening is as the supply base is shrinking, the mantle of control is shifting to the suppliers," Clark said. The occurrence of "fewer suppliers means more control for each supplier in that relationship. So whereas traditionally suppliers basically go for whatever the buyer asks for, suppliers are (now) in a position to be, for lack of a better term, pickier about what relationships they maintain."
Clark has noticed the dynamic play out in the restaurant industry. While some restaurant owners may choose to get their food from local farmers they know or who grow produce organically, larger chain restaurants frequently will order a large number of their supplies from a single company, Clark said.
"Generally from what I've seen, the larger the firm or company, the fewer suppliers they're going to have, and some of that is built into the operations of a company," he added. "They source from approved suppliers."
A similar occurrence is happening in other industries, including technology, Bhattacharyya said. He cited an example of a multinational technology company that has consolidated its suppliers to several dozen from the several hundreds the organization had a few decades ago. He said that many businesses have shifted from creating a huge supply base to "building very tactical, strategic supply bases."
"What if one of them shifts loyalty from you to somebody else?" Bhattacharyya said of suppliers. "It's a huge challenge. It forms an intense disruption of the supply chain."
They discussed their research at the conference, giving and answering a few questions during the presentation.
"In the operations and supply chain management field, you teach and preach what you do. You really can't do anything other than that because then you're either doing something wrong or you're outdated," Bhattacharyya said. "Bringing the real-world examples to the classroom and building research into the classroom is something more easily done in a field like operations and supply chain management as opposed to something like social sciences, for example."
The ISU team has built an analysis model based on their research to determine the factors that most greatly impact a supplier's decision to maintain its relationships strategically. They are still doing research with businesses in different fields to test their model.
"If you buy bulk orders, you're going to save money from somebody who can supply everything for your restaurants compared to one guy for your produce, one guy for your meat, one guy for your paper products," Clark said. "Even on a small scale, those trends still hold true."
Yet technological advancements have made it possible for both buyers and suppliers to scour the globe for potential business partners that can be advantageous, Clark and Bhattacharyya said, though companies have established more close ties with a fewer number of suppliers, rather than increase its number of suppliers.
"We are moving into an area where trust and long-term relationships, how somebody covers your back is more important in the long run," Bhattacharyya said.
Contact: Kuntal Bhattacharyya, assistant professor of operations and supply chain management, Scott College of Business, Indiana State University, 812-237-2118 or firstname.lastname@example.org
Writer: Austin Arceo, assistant director of media relations, Office of Communications and Marketing, Indiana State University, 812-237-3790 or email@example.com
Neil Clark and Kuntal Bhattacharyya, assistant professor of operations and supply chain management, presented their research on supplier perspectives in business relationships at the 43rd annual meeting of the Decision Sciences Institute in San Francisco.