There is ample anecdotal evidence in corporate practice and academic research that supplier development as any set of activities a buying firm expends on a supplier to improve supplier performance and/or supplier capabilities (Krause et al., 2000) can help to meet supply needs and generate favorable results for the buying firm. Recognizing the long-term and strategic benefits of supplier development, many companies have established supplier development programs and teams. Honda of America, for example, has adopted the BP (“Best Practice, Best Process, and Best Performance”) supplier development program to help suppliers in implementing the Kaizen philosophy for continuous improvement and organizational change (MacDuffie and Helper, 1997 and Sako, 2004). John Deere built up a systematic supplier development approach to upgrade suppliers’ just-in-time capabilities. Working with John Deere’s supplier development teams, suppliers were able to achieve dramatic reductions in cycle time (Golden, 1999). Several aerospace and defense companies, including Boeing, Lockheed, Northrop Grumman, Rockwell Collins, Parker Aerospace, and United Technologies, joined forces and established a program called the “Supplier Excellence Alliance” with the goal to share best practices with suppliers and to realize improvements in quality, on-time delivery, and inventory levels at the suppliers. After a few years into the program the tier-one suppliers now began to share with their own suppliers what they have learned from the aerospace and defense companies (Avery, 2008). By consulting with the problem solving teams of Toyota’s Operations Management Consulting Division (OMCD) in Japan and the Toyota Supplier Support Center (TSSC) in the United States, many suppliers have received assistance in building up lean manufacturing capabilities. These organizational capabilities benefited both the suppliers and Toyota in the long run (Dyer and Hatch, 2006 and Dyer and Nobeoka, 2000). Wal-Mart set up a supplier development group and a series of strategies that help the retailer to better serve customers. This group fosters close collaboration between Wal-Mart and its suppliers and joint business planning. Consequences of these efforts include significant improvement in customer awareness of brands, successful key item launches, and increased sales (Hahn, 2005).
In line with the bigger prominence of supplier development in corporate practice, scholars have lately paid increased attention to supplier development activities and programs. In 2007 alone, nine articles focusing on supplier development were published in production- and operations management-related journals (Araz and Ozkarahan, 2007, Carr and Kaynak, 2007, Chan and Kumar, 2007, Krause et al., 2007, Lee and Humphreys, 2007, Li et al., 2007, Modi and Mabert, 2007, Rogers et al., 2007 and Wouters et al., 2007). All these studies and previous research on supplier development have investigated the buying firms’ supplier development activities at a single point in time and ignored the life-cycle of the buyer–supplier relationship.
Scholars pointed out that suppliers with strategic partnership-like relationships with the buying firm should be considered as potential candidates for supplier development (Araz and Ozkarahan, 2007 and Talluri and Narasimhan, 2004). Likewise, Li et al. (2007, p. 231) remarked that “[i]mprovements in performance will happen within the unique exchange relationships developed between the buyer and supplier firms.” Since such ‘strategic partnership-like relationships’ or ‘unique exchange relationships’ which influence the effectiveness of buying firms’ supplier development activities develop over time, I contend that it is necessary to go beyond the study of supplier development activities at a single point in time and to take the stage of the buyer–supplier relationship into account.
My study draws on social capital theory (e.g., Adler and Kwon, 2002, Inkpen and Tsang, 2005 and Nahapiet and Ghoshal, 1998) to explore the performance improvements of buying firms willing to develop social capital with key suppliers through supplier development. The primary goal of the study is to explore the impact of the dynamic nature of buyer–supplier relationships on the outcome of buying firms’ supplier development activities. I test my proposed model in a cross-sectional sample by means of a quasi-longitudinal analysis. More specifically, I show that different stages of the buyer–supplier relationship life-cycle moderate the relationship between supplier development and the buying firm’s performance. As such, my research refines and extends previous empirical studies on supplier development and asserts that the life-cycle of the buyer–supplier relationship should be included as a moderator in models studying the impact of supplier development and other models investigating buyer–supplier relationship practices.
I next provide a review of the current literature on buyer–supplier relationship dynamics embedded within the theoretical constructs of social capital theory and previous research in management and relationship marketing. This includes the delineation of my hypothesis. Next, I describe the data and the measures, and present the analysis and results. Finally, I discuss implications for further research.
