Volume consolidation is a major consequence of supply base reduction. This study explores the relationships between volume consolidation and supply chain outcomes such as buyer coordination costs, supplier performance, buyer environment learning ability, and buyer learning from the supplier. This study also examines the effects of these supply chain outcomes on buyer satisfaction. Based on results derived from an empirical study of 398 Chinese manufacturing companies, it is found that volume consolidation enhances supplier performance, buyer learning from the supplier, and its environment learning ability. It is also determined that coordination costs negatively affect supplier performance and buyer satisfaction. Environment learning ability does not affect buyer satisfaction, while supplier performance and buyer learning from the supplier positively affect buyer satisfaction. As such, the effects of volume consolidation are not limited to enhanced supply chain performance, but also to organizational learning in the supply chain.
Supply base reduction has attracted significant research interest in recent years. Researchers argue that companies can achieve various supply chain outcomes, such as supplier and customer responsiveness, reduced transaction cost, reduced supply risk, supplier innovation, and financial performance, using a limited number of suppliers (e.g., Chen et al., 2004; Choi and Krause, 2006; Goffin et al., 1997). These studies have emphasized the benefits of such reduction at the overall supply base level. Reduction of costs by handling fewer suppliers, for example, is a distinct benefit (Choi and Krause, 2006). However, little attention has been paid to the effects of supplier base reduction on the individual buyer–supplier relationship.
For a buyer, one major result of its supply base reduction effort is volume consolidation, i.e., the buyer purchases a large portion of its supply from one supplier. In a particular buyer–supplier dyad, the level of volume consolidation can be measured by the percentage of total supply that the buyer purchases from the supplier. Here we maintain that studying the effects of volume consolidation on the individual buyer–supplier relationship is critical. Specifically, when examining the outcomes of a buyer–supplier relationship, prior researchers often focus on two prominent indicators: supplier performance and buyer satisfaction (e.g., Cannon and Perreault, 1999; Mohr and Spekman, 1994; Monczka et al., 1998). However, the effects of volume consolidation extend, in fact, beyond these two indicators. Specifically, for a buyer, volume consolidation generally leads to integration with its suppliers ( Zaheer et al., 1998). Essentially, the volume of transactions between two parties reflects the importance of inter-firm transactions, and subsequently influences efficacy of inter-firm coordination ( Buvik and Gronhaug, 2000a). That is, repeated, high-volume business transactions generate mutual dependence between two parties. This dependence, in turn, motivates companies to integrate activities across partners and supply chains to effectively deliver product to the market ( Choi and Krause, 2006; Das et al., 2006; Handfield, 1993). Under these circumstances, integration between trading partners is expected.
Therefore, we argue that successful volume consolidation should allow a buyer to achieve various benefits of inter-organizational integration. Following this logic, one should study the effects of volume consolidation in terms of the benefits of inter-organizational integration. Thus, two questions arise: (1) What are the major dimensions of integration? (2) What are the major benefits offered by these integration dimensions?
Adapting Jaspers and van den Ende’s (2006) dimensions of integration, we first argue that the major dimensions of inter-organizational integration include task integration, coordination integration, and knowledge integration. Next, four supply chain outcomes are identified as the indicators of outcomes of the three dimensions. They are supplier performance, buyer coordination costs, buyer learning from the supplier, and buyer environment learning ability. Subsequently, we maintain that these outcomes also constitute major benefits of integration associated with volume consolidation. We then study the relationships between volume consolidation and the four outcomes. In addition, we examine the effects of the four outcomes on buyer satisfaction, which is a reflection of assessment of the value that it receives from the supplier (Zaheer and Venkatraman, 1995). Thus, buyer satisfaction is a critical indicator of overall success of the buyer–supplier relationship.
This study contributes to supply chain management literature in a unique way. While prior studies focus on the antecedents and overall effects of supply base reduction (e.g., Chen and Paulraj, 2004; Ogden, 2006), we focus on its various effects on organizational learning, as well as on overall relational performance and coordination costs at the level of individual buyer–supplier dyads. Specifically, we extend the existing literature by exploring different supply chain outcomes of volume consolidation, to include its effects on an organization's learning ability. Our empirical findings indicated that, contrary to the suggestion of some prior studies (e.g., Das et al., 2006), integration between two independent companies may enhance their ability of learning from their environment. Our results also indicate that volume consolidation enhances buyer learning from the supplier. As such, from a buyer's perspective, volume consolidation not only improves supplier performance, but also provides strategic advantages in terms of organizational learning. Thus, our findings enhance our understanding of learning among supply chain members.
The next two sections of this paper present our conceptual framework and research hypotheses, followed by research methodology and findings. The remaining sections provide the implications of our findings, limitations of the study, future research directions, and conclusions.
