Antecedents of Supply Base Reduction Efforts: An Empirical
Investigation
*Jeffrey A. Ogden, Ph.D.
Assistant Professor of Supply Chain Management
Business Management Department
Brigham Young University
681 TNRB
Provo, UT 84602
Phone: (801) 422-2266
Fax: (801) 422-0108
jeffrey.ogden@byu.edu
Lisa M. Ellram, Ph.D.
Bebbling Professor of Business
W.P. Carey School of Business
Supply Chain Management Department
Arizona State University
PO Box 874706
Tempe, AZ 85287-4706
* Author for Correspondence
Antecedents of Supply Base Reduction Efforts: An Empirical
Investigation
ABSTRACT
One important decision in the design of an organization’s supply chain is the number of
suppliers that will be utilized for a given product or service. Supply base reduction is one tool
that managers can use to help create and administer a supply base. Unfortunately, very little
literature deals directly with supply base reduction issues. Based on the results of case studies at
ten organizations that had recently implemented supply base reduction activities, this paper
begins the process of filling this void in the research by discussing the antecedents that were
associated with the supply base reduction activities of these organizations. A review of the
literature is used to develop propositions which are tested using the empirical data.
INTRODUCTION
As a strategic function today, some of the most important and fundamental decisions that
purchasing and supply management can make concern the creation and management of their
supplier base. Some argue that an organization is only as good as its sources of supply
(Rajagopal and Bernard 1993). Hahn, Watts and Kim (1990) support this notion by arguing that
“without a competent supplier network, a firm’s ability to compete effectively in the market can
be hampered significantly” (p. 3). Fine (1998) emphasized the importance of an organization’s
supply base by stating that supply chain design is the ultimate core competency.
One important decision relating to the design of an organization’s supply chain is the
number of suppliers that will be utilized for a given product or service (Cooper, Lambert and
Pagh 1997). Consequently, gaining an understanding of the tools that can be used in creating
and managing a supply base should be a top priority to supply management professionals.
Supply base reduction is one such tool. The research questions addressed by this article are: 1)
What are the antecedents of supply base reduction efforts and, 2) How do they influence an
organization’s supply base reduction decisions?
LITERATURE REVIEW
Although supply base reduction appears to be widely implemented and discussed in
industry, most of the literature dealing with supply base reduction is brief and lacks specifics.
Very few articles have dealt specifically with supply base reduction. This section introduces and
summarizes the literature related to the antecedents of supply base reduction, most of which only
briefly mention supply base reduction or are only tangentially related to the topic. Table 1
identifies the articles that specifically mention or cover various antecedents of supply base
reduction efforts. This literature was instrumental in the formation of propositions related to the
antecedents of supply base reduction activities, which will be listed in the methodology section
of the paper. The paragraphs following Table 1 discuss the various potential antecedents in more
detail.
Table 1
Antecedents of Supply Base Reduction Efforts
Antecedent
Desire to form partnerships with
suppliers
Reference
Spekman (1988)
Methodology
Conceptual
Ellram (1991)
Landeros and Monczka (1989)
Gentry (1993)
Stuart (1993)
Anonymous (1996)
Cousins (1999)
Scannell, Vickery, and Droge
(2000)
Cox (2001)
McCollum (2001)
Case studies
Field interviews
Conceptual
Survey
Survey
Survey
Survey
Desire to reduce costs
Monczka and Trent (1991)
Cousins (1999)
Interviews and Survey
Survey
Degree of uncertainty or
complexity of purchasing situation
Hahn, Kim and Kim (1986)
Conceptual
Homburg and Kuester (2001)
Wasti and Liker (1999)
Williamson (1981)
Williamson (1985)
Survey
Survey
Conceptual
Conceptual
Monczka, Trent and Handfield
(1998)
Homburg and Kuester (2001)
Textbook
Standardization
Kekre, Murthi and Srinivasen
(1995)
Cross-sectional PIMS data
Level of competitive pressure
Kekre, Murthi and Srinivasen
(1995)
Survey
Desire to implement other
purchasing strategies
Trent and Monczka (1999)
Questionnaire completed by
seminar participants
Relationship-specific investment
Bakos and Brynjolfsson (1993)
Mathematical Model
Desire for increased leverage
Galt and Dale (1991)
Cruz (1996)
Handfield, Krause, Scannell and
Monczka (2000)
Crabtree (2000)
Stundza (2001)
Single case study
Survey
Survey
Financial importance of the
product
Conceptual
Conceptual
Survey
Single case study
Survey
Frequency of transaction
Williamson (1981)
Williamson (1985)
Williamson (1986)
Kekre, Murthi and Srinivasen
(1995)
Conceptual
Conceptual
Conceptual
Cross-sectional PIMS data
Centralization
Anonymous (1994)
Smock (2001)
Stundza (2001)
Survey
Conceptual
Survey
Pressure from others
Meyer and Rowan (1977)
Dimaggio and Powell (1983)
Conceptual
Conceptual
Desire to form partnerships with suppliers
Many authors suggest a link between partnerships and supply base reduction efforts
(Ellram 1991; McCollum 2001; Spekman 1988; Landeros and Monczka 1989; Stuart 1993;
Scannell, Vickery, and Droge 2000). What is unclear, however, is whether an increased desire
for partnerships with suppliers is facilitating supply base reduction efforts or whether supply
base reduction efforts are necessitating closer partnerships with suppliers. One survey indicates
that the former may be true (Anonymous 1996). Over eighteen percent of the survey
respondents cited partnering agreements with fewer suppliers as one of their reasons for reducing
the supply base. For other organizations, the development of closer relationships with suppliers
may be an outcome rather than an antecedent of the supply base reduction process.
In a survey of medium to large firms in the UK, (Cousins 1999) 93 percent of the
respondents indicated that one of their main reasons for pursuing supply base reduction was to
enhance relationship development. Gentry (1993) points out that purchasing firms that engage in
supplier partnerships generally have a smaller supply base than firms that do not engage in
supplier partnerships.
According to Cox (2001), one of the key roles of the purchasing function is to reduce the
number of suppliers whenever multiple or redundant supply relationships exist. Such reductions
allow the purchasing function the time and resources necessary to concentrate on developing
long-term performance improvement relationships with preferred suppliers (Cox 2001).
Desire to decrease costs
In Cousins’ (1999) survey, 79 percent of the respondents indicated their main reason for
engaging in supply base reduction activities was to save money either by 1) reducing the
purchase price of goods and services or 2) reducing the transaction costs associated with
managing suppliers. Monczka and Trent (1991), through a combination of interviews with and
surveys of executive level managers, concluded that the need to lower transaction costs is a
major motivation to reduce the number of suppliers.
Degree of complexity or uncertainty of the purchasing situation
Based on the analysis of their survey data, Homburg and Kuester (2001) found that as the
degree of complexity of purchasing situation increases, companies typically utilize fewer
suppliers. Purchasing small volumes from multiple suppliers can increase the amount of
uncertainty in the supply chain. Demand patterns are much more stable and more easily matched
by suppliers when fewer suppliers are being utilized (Hahn, Kim, and Kim 1986). Thus,
organizations may perceive supply base reduction as a tool that can be utilized to reduce
complexity and uncertainty in their supply bases.
Risk arises from uncertainty. Transaction cost economics states the greater the
uncertainty, either internal or external, the greater the degree of vertical integration. However,
Wasti and Liker (1999), in a study examining the outsourcing of design work, found that
increased technological uncertainty led to an increase in the amount of supplier involvement.
This finding contradicts transaction cost economics (Wasti and Liker 1999).
Financial importance of the product
Homburg and Kuester (2001) found that the number of suppliers utilized for a given
product is positively influenced by the financial importance of the product. The more
financially important a given product is to an organization, the more suppliers the organization
will utilize for that product to minimize the risks associated with shortages or capacity
constraints.
However, the importance of purchased inputs to the buying firm may also affect the
buying firm’s perspective toward supply base reduction. According to Monczka, Trent and
Handfield (1998), firms that have a high purchase dollar to sales dollar ratio may place more
emphasis on their purchasing function and thus be more likely to think about their suppliers in
strategic terms than firms with low purchase dollar to sales dollar ratios. Thus, the greater the
strategic importance of the product or service, the more likely the buying organization may be to
utilize fewer suppliers and form closer relationships with those suppliers.
Standardization
Kekre, Murthi and Srinivasen’s (1995) analysis of the Profit Impact of Market Strategy
(PIMS) database showed that firms with wider product lines are more likely to engage in supply
base reduction activities than firms with narrower product lines. They point out that this
increased likelihood may be due to the possibilities for standardization and the accompanying
reduction in the number of parts utilized.
Level of competitive pressure
Through a statistical analysis of the PIMS data, Kekre, Murthi and Srinivasen (1995)
found that firms with lower levels of competition among suppliers were more likely to engage in
supply base reduction activities than firms with higher levels of competition among suppliers.
This finding suggests that when the market mechanism is not working efficiently, supply base
reduction activities may be used to stimulate competition among suppliers.
Desire to implement other purchasing strategies
Based on the results of a comprehensive, longitudinal questionnaire completed by
participants at Michigan State University seminars, Trent and Monczka (1999) concluded that
advanced sourcing strategies requiring closer interaction between the purchaser and seller are
simply not feasible with a large supply base. Similarly, in the literature, supply base reduction is
most frequently mentioned in articles dealing with other supply management strategies and is
often viewed as a prerequisite for such strategies (Monczka and Trent 1991). The logic behind
this view is that reducing the number of suppliers for a given product or service frees up valuable
resources that can be more effectively utilized in other supply management strategies. Thus
buyers can more effectively communicate and share information with remaining suppliers, a key
component of other strategies for which supply base reduction has been listed as a prerequisite,
antecedent, or component such as supplier partnering (Ellram 1991; McCollum 2001; Spekman
1988; Landeros and Monczka 1989; Stuart 1993; Scannell, Vickery, and Droge 2000) and
supplier development (Hartley and Choi 1996; Krause 1997; Hahn, Watts, and Kim 1990;
Forker, Ruch, and Hershauer 1999; Scannell, Vickery, and Droge 2000). In a supplierdevelopment related survey, conducted by Handfield, Krause, Scannell and Monczka (2000),
managers reported that optimizing their supply bases along with standardizing parts led to
lowered administrative costs and freed up resources over the long term. These results made
supplier development more feasible. The literature also cites numerous examples of how a
reduction in the number of suppliers used for a given item is essential for JIT systems (Handfield
1993a; Handfield 1993b; Anasari and Modarress 1990; Chapman and Carter 1990; Mehra and
Inman 1992; Manoochehri 1984; Akinc 1993; Scannell, Vickery, and Droge 2000; Fawcett and
Birou 1993; Pearson and Ellram 1995).
Relationship or transaction-specific investment
In a traditional competitive environment, suppliers may view investment in research and
development or capital assets as too risky, and perhaps too costly, and will be reluctant to make
these types of long-term investments (Hahn, Kim, and Kim 1986). Limiting the number of
suppliers and working more closely with them reduces volume uncertainty. This reduction in
uncertainty can lead to an increased investment in relationship-specific assets. Landeros and
Monczka (1989) proposed that “by awarding one or several preferred suppliers the majority of a
given purchase requirement, the increased volume frequently makes it possible for a supplier to
refine or automate its production operation” (p. 14).
Bakos and Brynjolfsson (1993) use a mathematical model to advance the thesis that firms
are increasingly being forced to provide incentives to encourage their suppliers to invest in
important areas such as quality improvements, information sharing, and innovation. They show
that reducing the number of suppliers increases their bargaining power, and thus increases their
incentives to make relationship-specific investments. Bakos and Brynjolfsson’s (1993) approach
is motivated by field studies of buyer-supplier relations that suggest that in many cases the shift
to fewer suppliers is not driven by simple changes in economies of scale, coordination costs,
asset specificity, or monitoring costs. Instead the shift to fewer suppliers is driven by the
advantages that smaller, tighter networks of suppliers enjoy in characteristics such as innovation,
adoption of new technology, quality, information exchange, trust, flexibility, and responsiveness.
Desire for increased leverage
Many articles suggest a relationship between the number of suppliers and a firm’s
leverage (Cruz 1996; Crabtree 2000; Handfield, Krause, Scannell and Monczka 2000; Stundza
2001; Galt and Dale 1991). In fact, these articles suggest that a desire for increased leverage is
the main driver of supply base reduction efforts. Perhaps the desire to purchase larger volumes
from fewer suppliers is due to the price reductions that can result from the increased leverage.
Some of the buying organization’s price leverage may come from their increased importance to
the supplying firm. Because of this increased importance, the suppliers may be more willing to
make concessions that benefit the buying organization.
Frequency of transactions
Transaction cost theory suggests that the number of suppliers that an organization utilizes
and the type of relationship that the organization has with its suppliers is partially determined by
the frequency of the transactions (Williamson 1981; Williamson 1986; Williamson 1985).
Perhaps the more frequent the transaction, the more likely the organization is to engage in supply
base reduction activities. Transaction cost theory seems to suggest this relationship, but is not
clear about whether this relationship is the case or not.
Kekre, Murthi and Srinivasen’s (1995) analysis of the PIMS database showed that firms
which frequently change their products are more likely to engage in supply base reduction
activities than firms which do not frequently change their product lines. Perhaps the closer
relationships with fewer suppliers helps facilitate frequent changes to an organization’s products.
Centralization
A few articles discuss the relationship between centralized purchasing and an
organization’s supply base reduction efforts (Smock 2001; Stundza 2001; Anonymous 1994).
These articles suggest that a shift toward more centralized purchasing necessitates or leads to
supply base reduction. Conversely, a shift toward more decentralized purchasing may lead to
supply base growth. Perhaps a majority of the recent supply base reduction efforts can be
attributed to recent trends associated with centralizing purchases of MRO, services, and capital
goods.
Pressure from others
Meyer and Rowan (1977) discovered that early adopters of a given process or activity are
often motivated by the efficiency gains that such processes or activities can provide. Later
adopters, on the other hand, are motivated by the legitimacy that utilizing such process or
activities provides to their organization. Dimaggio and Powell (1983) later classified this
institutional isomorphism into three categories: 1) coercive, 2) mimetic, and 3) normative.
Coercive isomorphism deals with the political influence that may be asserted on an organization
to conform to the agenda of another organization or individual. Perhaps there are those within
the organization who utilize their political power to mandate supply base reduction efforts.
Mimetic isomorphism is when organizations copy the actions of others. This type of
isomorphism mainly occurs in highly uncertain situations. An argument could be made that
many of the supply base reduction efforts of companies are due to their imitation of cutting-edge
supply chain management organizations. The final type of isomorphism – normative
isomorphism – deals with the pressures that organizations can feel from professional bodies to
comply to established standards or norms. Some organizations might feel the need to conform
to supply base reduction norms in order to fit into professional organizations such as the Institute
for Supply Management (ISM) or the Purchasing Management Association of Canada (PMAC).
Other potential antecedents
Other potential antecedents to supply base reduction efforts that are mentioned in the general
business literature include changes in the supply market, merger and acquisition activity, the use
of corporate benchmarking, supply chain management initiatives, and top management
directives.
Summary of antecedent-related literature
A thorough review of the relevant literature revealed many potential drivers of supply
base reduction activities (see Table 1). However, the relationships between these drivers and
supply base reduction activities are conceptual, speculative, and uncertain. Thus, this empirical
research focuses on gaining a greater understanding of the relationship between these drivers and
the supply base reduction activities of organizations.
METHODOLOGY
In-depth case studies were used to gain a greater understanding of supply base reduction
implementation issues. Case studies were conducted with ten organizations that had recently
reduced their supply bases.
Propositions
An important step in qualitative research is the development of propositions (Yin, 1994;
Strauss and Corbin, 1998). Without a stated purpose and some type of boundary, it becomes
difficult to know what type and how much information to gather as well as from whom it should
be gathered. Developing propositions helps the researcher pinpoint what he or she should study
(Yin, 1994). Propositions discuss the possible interactions between various components of the
topic and possible reasons for these interactions. Table 2 shows the propositions dealing with the
antecedents of supply base reduction activities.
Table 2
Propositions Dealing with the Antecedents of Supply Base Reduction Activities
Variable
Supply market changes
Financial importance
Frequency of transaction
Relationship or
transaction-specific
investment
Standardization
Leverage
Centralization
Desire to reduce costs
Desire to form
partnerships
Uncertainty or
complexity
Other purchasing
strategies
Pressure from others
Mergers and acquisitions
Unit of Analysis
Proposition
P1 – The degree of competition in the supplier market is inversely related to the
supply base reduction activities of the buying organization.
P2 – The financial importance of a particular product or service being purchased is
positively associated with the supply base reduction activities of that product or
service.
P3 – The frequency of the purchasing transactions for a given product or service are
positively associated with the supply base reduction activities implemented for that
product or service.
P4A – The extent to which relationship-specific investments are required in the
purchase of a product or service is positively related to the supply base reduction
activities related to that product or service.
P4B – The extent to which transaction-specific investments are required in the
purchase of a product or service is positively related to the supply base reduction
activities related to that product or service.
P5 – The extent to which an organization desires to standardize the products or
services that it purchases is positively related to its supply base reduction activities.
P6 – The extent to which an organization desires to increase its leverage over its
suppliers is positively associated with its supply base reduction activities.
P7 – The amount of purchasing centralization for a given product or service is
positively associated with the supply base reduction activities of that product or
service.
P8 – The extent to which an organization desires to reduce costs is positively
associated with its supply base reduction activities.
P9 – The extent to which an organization desires to form partnerships with its
suppliers is positively related to its supply base reduction activities.
P10 – The degree of market uncertainty and complexity is positively associated with
an organization’s supply base reduction activities.
P11 – The extent to which an organization desires to implement other “more
advanced” purchasing strategies or supply chain management initiatives is positively
related to its supply base reduction activities.
P12A – Coercive pressures from top management, government organizations,
customers and professional organizations lead to increased supply base reduction
activities.
P12B – Mimetic pressures that result from benchmarking activities and a desire to fit
in with other organizations lead to increased supply base reduction activities.
P12C – Increased competitive pressure leads to increased supply base reduction
activities.
P13A – Mergers and acquisitions at the organizational level lead to increased supply
base reduction activities.
P13B – Mergers and acquisitions within the supply market lead to increased supply
base reduction activities.
For purposes of this research, the unit of analysis was the firm’s overall supply base
reduction efforts. While individual supply base reduction projects involving a certain type of
product or service may have their own unique drivers, the goal of this research was to gain a
greater understanding of why organizations implement a supply base reduction strategy in the
first place.
Case Study Participants
To identify suitable organizations, participants at the 2002 North American CAPS
Research Roundtable, mostly Chief Purchasing Officers (CPOs) or Vice Presidents of Supply
Chain Management at their respective organizations, were asked to respond to two questions.
First, has their organization been involved in supply base reduction activities? Second, has their
organization been able to quantify the benefits of supply base reduction activities? While nearly
two-thirds of the respondents indicated that they were involved in supply base reduction
activities, less than half of the respondents answered “yes” to both of these questions. A search
of the practitioner literature revealed another eighteen companies that claimed to have
successfully implemented supply base reduction efforts.
Contact letters were mailed to thirty-seven of these organizations. Responses were
received from twenty-three organizations. Thirteen of the responses indicated that the
organization would be willing to participate in the research. These thirteen organizations were
then pre-screened through an initial telephone interview to ensure that they did indeed qualify for
inclusion in the study. Three of the thirteen organizations were eliminated because of
scheduling conflicts, management changes, or other situations that arose before the interviews
could take place. Therefore, the data collection efforts were focused on the ten remaining
organizations.
The ten companies represented various industries, products, and magnitudes of supply
base reduction activities. Table 3 provides a summary of the respondent demographics. The
respondent companies were very large companies with average sales of $22.7 billion. Four of
the ten companies were Fortune 100 companies. Eight of the ten companies were Fortune 500
companies. One of the companies was a large private university and one of the companies was a
large government contractor.
Table 3
Summary of Case Study Organizations
Company
A
B
C
D
E
F
Industry
Transportation
Manufacturing
Pharmaceutical
Microprocessor
Manufacturer
Heavy Equipment
Automotive
Product or Service
Chassis and Body Parts
Valve Enclosures
Computers
Electronic Components
Reduction
15,000 to 6
35 to 2
6 to 1
20 to 4
MRO
Bearings
1,675 to 20
2 to 1
G
H
I
Government Contractor
Vehicle Manufacturer
Education
J
Computer Manufacturer
3M Products
Major Component
Laboratory Equipment and
Supplies
Repair and Warranty
Services
10 to 1
3 to 2
200 to 20
20 to 1
Validity and Reliability
Tests of construct validity, internal validity, external validity, and reliability are used to
assess the quality of research designs and should be considered during the design stage of the
research (Yin 1994). Table 4, adapted from Yin (1994), summarizes these four tests and lists the
tactics that were utilized during this research to help ensure reliability and validity. The
following paragraphs discuss some of these tactics in greater detail.
Table 4
Tactics Used to Help Ensure Reliability and Validity in Case Study Research
Test
Construct Validity
Internal Validity
External Validity
Reliability
Definition
Establishing the correct
operational measures for the
concepts being studied
Establishing a causal
relationship, whereby certain
conditions are shown to lead
to other conditions, as
distinguished from spurious
relationships
Establishing the domain to
which a study's findings can
be generalized
Demonstrating that the
operations of a study such as
the data collection procedures
can be repeated, with the
same results






Tactics
Multiple sources of
evidence
Chain of evidence
Informant review
Pattern matching
Explanation-building
Time-series analysis

Replication logic in
multiple case studies


Case study protocol
Case study database
Multiple sources of evidence and informant review were utilized to help ensure construct
validity. Interviews were conducted with between four and eight individuals at each
organization for a total of 53 interviews. The main respondents at each organization were 1) the
Chief Purchasing Officer or other high-level purchasing executive and 2) the Supply Base
Reduction Project Manager. Other respondents such as buyers and employees from engineering,
logistics, production control, and quality were interviewed to provide additional insight into and
understanding of supply base reduction activities. On two occasions, division managers or
supplier representatives were interviewed.
After summarizing the interview data into case studies that were thirty single-spaced
pages long, on average, the researcher sent these case studies to the various organizations for
their review. Case study respondents were encouraged to suggest changes to the documents.
Minor changes were made to the case studies based on the feedback received from the
organizations and permission was granted to proceed with the data analysis using the information
contained in the case studies.
Replication logic is used in multiple case studies to establish the domain to which a
study’s findings can be generalized. This step is important in ensuring external validity. As
shown in Table 2 above, the case studies represented a wide variety of industries, products and
services, and size of reduction. Rather than representing ten data points as part of a quantitative
study, each of the case studies represents an experiment (Yin 1994; Ellram 1996). These socalled supply base reduction experiments were conducted under many different conditions
(industry, product or service, size of reduction, approach) with varying outcomes. In spite of all
of these different conditions, there are many commonalities among supply base reduction
processes utilized by the case study organizations. The one area that could potentially limit the
generalizability of the findings might be the size of the organizations studied. The case study
organizations had average revenues of $22.7 billion. However, the researcher believes that the
supply base reduction processes utilized by these organizations are equally applicable to much
smaller organizations.
Many different approaches were utilized to analyze the case data from this research. The
primary analyses included pattern matching (Yin 1994), explanation building (Yin 1994), withincase analysis (Eisenhardt 1989), and cross-case analysis (Eisenhardt 1989). Various charts,
tables, figures and diagrams (see Miles and Huberman 1994) were also constructed and utilized
as part of the data analysis phase of the research.
Theory Building Process
After the data had been collected and analyzed the researcher returned to the propositions
to determine whether they were supported or not by the empirical evidence that had been
collected. Alternative explanations were also considered for both supported and non-supported
propositions.
An important item to remember in this phase of the research is that case study research
does not preclude the collection of quantitative data (Ellram 1996). Strauss and Corbin (1998)
argue that “data collection and analysis can be done in both modes, and in various combinations,
during all phases of the research process” (p. 31). Some quantitative data was collected and
analyzed as part of the case study research process.
DATA ANALYSIS AND FINDINGS
The Chief Purchasing Officers, or other high-level purchasing executives at the
organizations studied, were asked about the amount of influence (1 = none, 3 = moderate, and 5
= significant) that specific items had on their decision to implement supply base reduction
activities at the organizational level. Table 5 lists the results of this data collection. The items in
Table 5 are in ranked order according to their total influence on supply base reduction
implementation. Case study respondents were also asked about how and why these antecedents
influenced their decisions to implement supply base reduction efforts. The following sections
discuss these items in greater detail in the context and order of the propositions listed above.
Table 5
Summary of Results of the Influence of Various Items on Supply Base Reduction Activities
Driver
1 - Desire for increased leverage
2 - Need for cost reductions
3 - Desire for partnership with suppliers
4 - Changes in level of competitive pressure
5 - Changing customer requirements/expectations
6 - Top management directives
7 - Supply chain management initiatives
8 - Change in use of corporate benchmarking
9 - Desire to adopt other purchasing strategies
10 - Changes in the frequency of transactions
11 - Changes in level of product/service standardization
12 - Changes in supply market
13 - Changes in the financial importance of product or service purchased
14 - Change in level of centralization
15 - Changes in level of uncertainty/risk
16 - Merger & acquisition activity
17 - Pressure from government/regulatory agencies
18 - Changes in the level of relationship or transaction-specific investment
19 - Pressure from professional organizations
20 - Desire to fit in with other companies (bandwagon)
1 = No Influence
3 = Moderate Influence
5 = Significant Influence
B
4
5
4
4
4
4
3
2
2
3
2
3
2
4
3
3
3
3
1
1
C
4
3
3
2
3
1
3
2
3
4
4
3
3
1
3
5
1
1
1
1
D
5
5
5
3
1
1
4
4
4
5
1
3
3
1
3
3
1
1
2
2
Company
E
F
3
5
5
3
4
4
2
3
3
3
5
5
5
4
5
4
3
4
3
2
2
4
2
1
3
2
1
1
2
1
2
1
2
1
2
4
1
1
2
1
= High or Significant Influence (4 or 5)
= Little or Moderate Influence (2 or 3)
= No Influence (1)
Key
A - Transportation
B - Manufacturing
C - Pharmaceutical
D - Microprocessor Manufacturer
E - Heavy Equipment
F - Automotive
G - Government Contractor
H - Vehicle Manufacturer
I - Education
J - Computer Manufacturer
A
5
4
5
5
5
5
4
2
3
3
5
4
4
5
3
2
3
3
1
1
G
5
5
3
5
5
4
4
5
5
5
4
3
5
5
5
3
4
2
4
2
H
5
5
5
5
5
5
1
5
5
1
1
2
1
2
1
1
3
1
1
1
I
5
5
4
5
4
3
3
4
3
1
2
4
1
4
4
1
3
1
2
1
J
5
5
4
4
3
2
4
1
2
3
4
3
4
3
2
2
1
3
1
1
Total
46.00
45.00
41.00
38.00
36.00
35.00
35.00
34.00
34.00
30.00
29.00
28.00
28.00
27.00
27.00
23.00
22.00
21.00
15.00
13.00
Supply Market Changes
Overall, it appears as though changes in the supply market have only a moderate
influence on an organization’s decision to implement supply base reduction activities. As
indicated by the response to item 12 in Table 5, only two of the ten case study organizations
indicated that this factor had a high or significant influence on their decision to implement
supply base reduction activities. One change in the supply market that does have an influence on
supply base reduction activities is merger and acquisition activity within the supply base.
Mergers and acquisitions will be discussed more specifically in a following section.
A second significant change that occurred in the supply markets of Companies B and J
was a shift of purchases to low cost regions in order to satisfy customer expectations for cost
reductions. In some cases, this shift to low cost regions has necessitated increasing the number
of suppliers in the short-term as suppliers are developed. Once these supplies are established, the
number of suppliers can then be reduced as suppliers in high cost regions are phased out of the
supply base.
A third change in the supply market that may influence supply base reduction decisions is
the appearance of several large players involved in a particular product or service. This change
influenced Company J’s decision to implement a tiering approach to supply base reduction
efforts. Companies began appearing that specialized in products and services that Company J
typically performed itself. Repair suppliers that were once small niche players grew into billiondollar companies.
A fourth change in the supply market that can influence supply base reduction efforts is
in the processes or technologies being utilized. Company G utilizes products that are often in the
maturity or decline phase of their product life cycles. When companies change to newer
technologies and processes, it becomes more difficult for Company G to procure the parts that it
needs. As a result, Company G is forced to reduce its supply base and, in some cases, must bring
those processes into their own organization.
Therefore, while the development of new suppliers, processes, or technologies can
facilitate the establishment of tiering relationships and the outsourcing of processes or products,
the decline of other suppliers, processes, or technologies can also necessitate supply base
reduction activities and the return of processes or products to the organization.
Financial Importance of Product or Service Purchased
Overall, it appears as though changes to the financial importance of the products or
services being purchased have only a moderate influence on an organization’s decision to
implement supply base reduction activities (Table 5, item 13). Only three of the ten companies
indicated that changes in the financial importance of the product or service had either a high or
significant influence of their decisions to implement supply base reduction activities. Besides
changes in the financial importance, the absolute financial importance of products and services
were also influential in supply base reduction decisions. For example, Company G can incur
huge penalty costs for the failure of even the smallest product in its operations. Because the
smallest failure can lead to catastrophic consequences, Company G must closely monitor its
suppliers’ quality levels. Reducing the number of suppliers makes it easier for Company G to
control the quality levels and document the processes that are being followed. Therefore, the
financial importance, in terms of the potential penalties, of the product or service failure is one of
the items influencing Company G’s decisions to implement supply base reduction activities.
Frequency of Transaction
Overall, it appears as though changes in the frequency of transactions have a moderate
influence on an organization’s decision to implement supply base reduction activities (Table 5,
item 10). One of the major reasons that Companies B, C, D, F, G, and I reduced their supply
bases was to reduce the number of transactions with suppliers. Rather than sending out and
analyzing multiple bids every time something is purchased, these companies have been able to
negotiate long-term contracts with select suppliers and, thereby avoid the problems associated
with frequent transactions. In addition to reducing the number of bidding situations, working
with fewer suppliers can lead to fewer contracts, fewer purchase orders and fewer releases
against those purchase orders. Similarly, working with fewer suppliers makes it easier to track
down and correct problems, another part of transactions with suppliers.
By limiting the number of suppliers, these companies have been able to utilize systems
such as PeopleSoft or private e-marketplaces so that a majority of purchase requests flow directly
through the purchasing function to a supplier without any buyer intervention. These ordering
systems allow end-users to enter purchase order information that is then routed to various
individuals for approval. These systems and the accompanying supply base reduction efforts
allow the various purchasing departments to restructure from organizations that simply manage
transactions to organizations that focus on more strategic issues. Other companies, such as
Company H, that have traditionally utilized long-term contracts with their suppliers, did not feel
the need to reduce the supply base in order to significantly reduce the number of day-to-day
bidding and transactions.
Relationship or Transaction-Specific Investment Required
Relationship or transaction-specific investment costs appear to have very little influence
upon decisions to implement supply base reduction activities except for supply bases that
manufacture specific products for the buying organizations (Table 5, item18). Changing
suppliers in these situations often requires the purchase of new tooling as well as additional
testing and verification costs. Company B often buys the tooling for suppliers when volumes are
shifted from eliminated suppliers to new or retained suppliers. In some cases Company B is able
to shift the tooling from one supplier to another, but in most cases because the supplier transition
process takes place over an extended period of time, Company B buys duplicate sets of tooling.
Company B would prefer to manufacture two to three months worth of parts (enough to give the
new supplier time to get their facilities up and running) at the current supplier, then shift the
tooling to the new supplier; however, there are many risks associated with this approach. For
example, the new supplier might be delayed in its startup, or Company B could experience an
increase in demand during the supplier transition to which Company B would be unable to
respond. Buying multiple sets of tooling and running them concurrently for a short period of
time involves fewer risks but comes at a greater cost. Overall, obtaining funding for these
investments has been a challenge for the purchasing function. However, there is usually a good
return on investment for the new tooling because the tooling costs are offset by a decreased cost
per part with the new supplier.
On the other hand, one of the longer term benefits of reducing the number of suppliers is
that not as many sets of tooling are required for future production runs. Rather than buying ten
sets of tooling for ten different suppliers, Company B need only buy two or three sets of tooling
for one or two suppliers.
In general, relationship-specific investment requirements were one of the reasons that
many of the manufacturer’s didn’t utilize hundreds of supplies for a given product or service.
Company F, for example, single sources most of its parts and components. In some cases, like
pulley bearings, where the volume is high and there are capacity concerns, Company F will
utilize two or more suppliers. However, of the 400 plus different bearings bought by Company
F, there are only 4 or 5 that are sourced from more than one supplier mainly because of the
expense of qualifying extra suppliers. The extensive engineering validation and field-testing
process can costs hundreds of thousands of dollars and can take anywhere from 4 months to 2
years, depending on the application and the customer’s needs.
The purchasing of standard or commodity-like products or services does not involve
decisions about relationship-specific investments. Consequently, many of the case study
organizations reported that relationship-specific investments had little influence on their
decisions to implement supply base reduction activities.
Product or Service Standardization
Product or service standardization seems to have moderate influence on an organization’s
decisions to implement supply base reduction activities. Five of the ten organizations indicated
that standardization had either a high or significant influence on their supply base reduction
decisions (Table 5, item11). Some of the organizations viewed standardization as both a driver
of supply base reduction activities and an outcome of supply base reduction activities, while
others viewed it only as an outcome or a driver. When possible, companies are trying to
standardize part numbers and products prior to supply base reduction efforts. Sometimes this
standardization is difficult due to the sheer number of suppliers being utilized and the difficulties
associated with collecting and disseminating the necessary information. At other times
standardization is difficult because the purchasing department may not be able to make product
substitutions due to either internal (engineering, manufacturing, marketing) or external customer
demand.
Leverage
The desire for increased leverage appears to have a significant influence on the decision
to implement supply base reduction efforts. Nine of the ten companies listed this factor as
having either a moderately high or significant influence on their supply base reduction decisions
(Table 5, item 1). Overall, these organizations believe that power and negotiating leverage can
be gained by giving more volume to fewer suppliers. Leverage will be discussed in greater detail
in the benefits and drawbacks sections of this chapter.
Level of Centralization
Changes in the level of centralization appear to have a moderate influence on the decision
to implement supply base reduction activities (Table 5, item14). The leverage benefits
mentioned earlier are difficult to achieve without some type of centralized purchasing control
within the organization. Overall, most of the case study companies are either using a centralized
purchasing approach or are in the process of moving toward such an approach.
Centralizing the purchase of most commodities leads to increased visibility into what the
various divisions are purchasing and provides insight into the redundancy that exists in the
organization’s supply base. Therefore, centralization appears to go hand in hand with supply
base reduction efforts.
Cost Reductions
Along with the desire to increase leverage, the need for cost reductions appears to have a
very significant influence on the decision to implement supply base reduction activities. Eight of
the ten organizations indicated that the need for cost reductions had either a moderately
significant or significant influence on their decisions to implement supply base reduction
activities (Table 5, item 2).
Nearly all of the companies mentioned that one of their external challenges was increased
pressure from global competitors, especially in light of the recent downturns in the economy.
Many of the organizations mentioned that customers are simply awarding business to the
supplier with the lowest price. Many respondents mentioned that these organizations are being
squeezed by higher prices from suppliers on one side and by competitive pressures on the
customer side. This pressure is driving these organizations to move production facilities to low
cost regions.
Partnerships with Suppliers
A desire to develop closer relationships, or partnerships, with suppliers appears to have a
significant influence on the decision to implement supply base reduction efforts. Eight of the ten
case study organizations listed this desire as having either a significant or moderately significant
influence on this decision (Table 5, item 3). A common theme among respondent’s comments
was that reducing the number of suppliers allows organizations to focus more attention on the
remaining suppliers and form better relationships with them.
Uncertainty or Risk
Changes in the level of uncertainty or risk appear to have very minimal influence on an
organization’s decision to implement supply base reduction activities (Table 5, item15). One of
the risks that manufacturing organizations consider when making these decisions is the risk of
shutting down the manufacturing line due to problems caused by the elimination of suppliers or
replacing old suppliers with new ones. There are great risks of this problem occurring during the
transition phase of supply base reduction efforts. Therefore, the possibility of increased risk or
uncertainty tends to discourage supply base reduction efforts.
At Company I, researchers involved in long-term research projects are reluctant to
change suppliers in the middle of the project. These risks and uncertainties make the purchasing
department cautious about making such changes and create opposition to reducing the number of
suppliers.
On the other hand, Company G views supply base reduction efforts as a way to reduce
risk and uncertainty. Having fewer suppliers give Company G more leverage as well as helping
to reduce the uncertainty and complexity associated with dealing with a larger number of
suppliers.
Other Purchasing Strategies
The literature discussed above mentioned that supply base reduction activities are viewed
as a prerequisite to other purchasing strategies such as supplier development and just-in-time
purchasing. The case study organizations revealed that the desire to adopt other purchasing
strategies has a moderate influence on the decision to implement supply base reduction activities
(Table 5, item 9). The specific strategies that were mentioned included total cost of ownership,
formal supplier performance management systems, lean manufacturing, and supplier
development.
Total cost of ownership was one of the purchasing strategies for which supply base
reduction was mentioned as a prerequisite. Company A, for example, believed that by having a
smaller supply base it could more easily move toward more of a total cost of ownership
approach.
The application of a formal supplier performance management system was another
activity facilitated by reductions in the number of suppliers. Company C respondents indicated
that it is nearly impossible to track and manage detailed supplier performance metrics with a
large supply base.
Lean manufacturing is another strategy that is facilitated by supply base reduction
activities. Various consultants and “lean gurus” showed Company F quite clearly that a
reduction in the number of suppliers would certainly help its manufacturing plants because they
were spreading their resources across too many different suppliers. Many plant resources are
needed to manage all of the different aspects of supplier relationships (i.e., releases, schedules,
quality assessments, quality problems, and follow-up). Thus, during team meetings at the
corporate level, manufacturing asked purchasing to reduce the number of suppliers.
Consequently, purchasing implemented a supply base reduction strategy.
Companies F, G, and H mentioned that supply base reduction efforts were a prerequisite
to and facilitator of their supplier development activities. Company G would like to utilize
supplier development and better integrate suppliers into its business, both of which require a
smaller supply base. Supplier development activities are not efficient without ongoing supplier
relationships. Consolidating the spend to fewer suppliers helps encourage the suppliers to treat
the buying organization as more than just a name on a purchase order.
For Company H, supply base reduction activities are the first step in its purchasing
strategy pyramid and are integral to the success of the other strategies. Supply base reduction
activities facilitate having stronger relationships while using fewer resources. These activities
help keep Company H from adding people. One of the other strategies involves improving the
supply base. Driving more volume to fewer suppliers helps Company H work more closely with
the remaining suppliers to help them become better suppliers.
External Pressures
Pressure to reduce the number of suppliers can come from external sources, which can
exert coercive pressures, or from internal sources, which can exert pressures to imitate other
organizations. On the external side, pressure to reduce the number of suppliers can come from at
least four different groups: customers, top management, professional organizations, and
government organizations. On the internal side, pressure to imitate the actions of other
companies can come from benchmarking activities that show how the organization compares to
similar organizations in terms of the number of suppliers being utilized. These four sources of
pressure are discussed in the following paragraphs as they relate to supply base reduction efforts.
Changing customer expectations and requirements
Changing customer expectations and requirements appear to have a fairly significant
influence on decisions to implement supply base reduction activities (Table 5, item 5).
Customers have specifically asked Company B what it is doing to reduce its supply base in order
to reduce costs and improve quality. The purchasing function within Company B is also
receiving pressure from internal customers to standardize parts and reduce its supply base.
Company E’s customers are increasingly focusing on total cost rather than price and are
looking for ways to reduce total costs. Company E’s customers are supportive of its efforts to
remove costs by reducing its supply base.
On the other hand, Company H is receiving pressure from its customers to maintain its
supply base because reduction limits their choices, but they still want Company H to lower costs.
Top management
Top management is the second source of pressure concerning supply base reduction
activities. Top management directives appear to have a fairly significant influence on decisions
to implement supply base reduction activities (Table 5, item 6).
At Company A, top management’s new focus on operational excellence and cost
reductions necessitated dramatic reductions in the number of suppliers being utilized. Top
management has also made some aggressive cost reduction promises to Wall Street which they
feel can be achieved through strategies, such as supply base reduction activities. Consequently,
top management is very supportive of what purchasing is doing. Cost reduction goals are
incorporated into everyone’s budgets. Compliance with established purchasing programs is not
optional. Each of the 1,200 locations are given scorecards that report their rank in procurement
compliance – purchases from approved vs. unapproved suppliers – among several other
measures dealing with safety, fleet performance, and productivity. In addition, Company A’s top
management has emphasized the need to form closer relationships with fewer supplier and the
need to increase leverage with suppliers, both of which can be facilitated through supply base
reduction efforts.
Company B’s top management has goals to reduce the supply base and utilizes metrics
that measure progress toward those goals. Top management directives are a significant driver of
supply base reduction efforts at Company B.
One of the commodity teams at Company F admitted that it probably would not have
undertaken a certain supply base reduction project on its own without the corporate objective to
reduce the supply base. While the team may have ultimately arrived at a point where it would
have moved all of the business to one supplier, it probably would not have happened as quickly
without the corporate initiative.
Pressure from professional organizations
Professional organizations can be another source of pressure to reduce the number of
suppliers. However, it appears that these organizations have little or no influence on the
decisions made by the ten case study organizations (Table 5, item19).
What little pressure there is, as Company D noted, comes from the information in which
companies learn how they compare with other companies through participation in these
professional organizations. When companies learn that other companies are doing things better
then they are, they are motivated to make changes and do things better. Some of the professional
organizations that were mentioned included the Institute for Supply Management (ISM) and the
Supply Chain Council (SCC). However, for most of the case study organizations, a majority of
the pressure to implement supply base reduction activities comes from internal sources and their
goals to become better organizations rather than from external sources, such as these professional
organizations.
Pressure from government organizations
Government organizations are another source of pressure that can potentially influence
decisions to implement supply base reduction activities (Table 5, item 17). Most of the pressure
from government or regulatory agencies that the case study organizations mentioned related to
the use of minority suppliers. Pressure to utilize and help minority, or disadvantaged, suppliers
discourages the use of supply base reduction activities that would shift volume to fewer, but
larger, suppliers. For companies selling products to the government, this pressure can be
substantial and significant. Many of the case study organizations dealt with this pressure by
having a primary supplier and a secondary supplier, with the secondary supplier being the
minority, or disadvantaged, supplier.
There are also other pressures from government agencies that influence supply base
reduction activities. When Company B eliminates local suppliers and shifts its spend to lower
cost regions, it must deal with export regulations for its parts because of the military usage for
some of the parts that it manufactures. These regulations make supply base reduction efforts
more difficult. This difficulty has a negative influence on Company B’s decisions to implement
supply base reduction activities because of the complexity and the costs associated with
compliance.
Summary of external pressures
Overall, it appears that of the previously mentioned external pressures, customers and top
management have a significant influence on decisions to reduce the number of suppliers, but that
professional organizations and government organizations have very minimal, and often negative,
influence on such decisions.
Internal Pressures
Besides the pressure to reduce the supply base exerted by external forces, purchasing
organizations can also experience pressure from internal sources, which can involve pressures to
imitate other organizations. On the internal side, pressure to imitate the actions of other
companies can come from benchmarking activities that show how the organization compares to
similar organizations in terms of the number of suppliers being utilized. These pressures are
discussed in the following paragraphs as they relate to supply base reduction efforts.
Benchmarking
In terms of internal mimetic pressure, the increased use of benchmarking appears to have
a moderately high influence on the decision to implement supply base reduction efforts (Table 5,
item 8), but a desire to imitate or be like other organizations appears to have almost no influence
upon that decision (Table 5, item 20). These findings imply that the organizations are
implementing supply base reduction activities because of the efficiency and effectiveness gains
that can be achieved rather than because of the increased legitimacy or status that such actions
may create in the minds of others (i.e., stockholders, Wall Street, or others).
At Company D, one of the first things that the lead sourcing manager did, as part of a
supply base reduction project, was a full-blown benchmarking study of the industry to see what
was and was not feasible. He found that using strategic suppliers was feasible and something
that many other companies were doing.
One of the main drivers of the supply base reduction efforts at Company E was an
increase in the use of corporate benchmarking. Company E did some extensive benchmarking
research into how other best-in-class organizations were managing their indirect purchases.
Benchmarking also significantly influenced Company F’s and Company G’s decisions to
reduce their supply bases. Company F’s benchmarking efforts showed that it had many suppliers
compared to other companies in its industry.
Similarly, the vice president of purchasing at Company H and her staff developed their
purchasing strategies, which included supply base reduction efforts, after extensive
benchmarking and an internal assessment of how Company H compared to the results of
benchmarking non-competitors.
Mimetic pressure
Despite the amount of benchmarking that is taking place relating to supply base reduction
efforts, respondents did not admit to wanting to be like or fit in with other companies in terms of
their supply base reduction practices (Table 5, item 20). Company D did admit that, even though
it is somewhat influenced by what other companies are doing, it does not simply copy the supply
base reduction processes of other organizations. Company D tries to make sure that it is doing
things for the right reasons, not just because it is the fashionable or trendy thing to do. As
mentioned earlier, Company J would like to think that it is a leader, not a follower, and that other
companies may be doing things because it is, not the other way around.
Mergers and Acquisitions
Mergers and acquisitions appear to have only a little or moderate influence upon
decisions to implement supply base reduction activities (Table 5, item 16). Mergers and
acquisitions can involve the organization or its supply base. A couple of the case study
organizations have been through major mergers within recent years. Although supply bases
overlapped to some degree, mergers and acquisitions that Company B has been involved with
usually have a net result of adding previously unutilized suppliers to the supply base. On the
other hand, Company C’s recent merger provided significant opportunities to reduce costs by
eliminating organizational redundancies, leveraging the combined spend, and centralizing the
previously separate distribution systems through supply base reduction, or standardization,
efforts. Regardless of the outcomes, organizational mergers and acquisitions provide
opportunities to re-evaluate supply bases and work toward a more optimal number by either
eliminating suppliers or adding suppliers based on how much overlap there is between the two
supply bases.
In Company H’s situation, the merger of one of its major component suppliers and one of
its competitors had a significant influence on its decision to implement supply base reduction
efforts and eliminate that particular supplier from its supply base. Depending on the size and
number of organizations involved, mergers and acquisitions within the supply base can influence
supply base reduction decisions.
CONCLUSIONS AND MANAGERIAL IMPLICATIONS
This research has focused on the antecedents and drivers of supply base reduction efforts
at the organizational level. As shown in Table 5 above, the five items that have the most
significant influence on an organization’s decision to implement supply base reduction efforts
include 1) a desire for increased leverage, 2) the need for cost reductions, 3) a desire to form
closer relationships or partnerships with suppliers, 4) increased competitive pressure, and 5)
changing customer requirements and expectations. The five items that have the least significant
influence on an organization’s decision to implement supply base reduction efforts include 1)
merger and acquisition activity, 2) pressure from government or regulatory agencies, 3) the level
of relationship-specific investment required, 4) pressure from professional organizations, and 5)
a desire to fit in with other companies. Other items such as top management directives, supply
chain management initiatives, the use of corporate benchmarking, a desire to adopt other
purchasing strategies, the frequency of transactions, standardization, changes in the supply
market, changes in the financial importance of products or services being purchased, changes in
the level of centralization, and changes in the level of uncertainty or risk appear to have only a
moderate influence on an organization’s decision to implement supply base reduction efforts.
Table 6 lists the various antecedent-related propositions and their outcomes. The results
of the propositions (i.e., supported, moderately supported, or not supported) came from the
information in Table 5 as well as an analysis of the information gathered during the interviews
with the various case study respondents concerning these items. If many of the companies
indicated that a particular antecedent had a significant influence on their decision to implement
supply base reduction activities, the related proposition was considered supported (see Table 5).
If few or none of the companies indicated that a particular antecedent was influential in their
supply base reduction decisions, then the related proposition was not supported. Those
antecedents that were influential to some companies and not to others were considered
moderately supported. These results are presented in Table 6 and summarized in the following
paragraphs.
Table 6
Antecedent-Related Proposition Outcomes
Variable
Supply market
changes
Proposition
P1 – The degree of competition in the supplier market is
inversely related to the supply base reduction activities
of the buying organization.
Outcome
Moderately
Supported
Financial
importance
P2 – The financial importance of a particular product or
service being purchased is positively associated with the
supply base reduction activities of that product or
service.
P3 – The frequency of the purchasing transactions for a
given product or service are positively associated with
the supply base reduction activities implemented for that
product or service.
Moderately
Supported
P4A – The extent to which relationship-specific
investments are required in the purchase of a product or
service is positively related to the supply base reduction
activities related to that product or service.
Not Supported
Frequency of
transaction
Relationship or
transactionspecific
investment
Supported
Comment
Mergers and acquisitions within the supply base, shifts to lowcost regions, the emergence of large players in a certain market,
and technological changes can influence organizations away
from or toward supply base reduction activities.
Products and services that were of high or medium strategic
importance were targeted for supply base reduction efforts,
while various percentages of spend were represented, ranging
from low to high (see Figure 6).
One of the frequently cited reasons for reducing the number of
suppliers was to reduce the number of purchasing transactions.
Reducing the number of suppliers allows the case study
organizations to shift away from short-term contracts, awarded
through competitive bidding situations, toward long-term
contracts and relationships.
Relationship-specific investment costs appear to have very little
influence upon decisions to implement supply base reduction,
except in supply bases that manufacture specific products for
the buying organization. However, even in those situations,
relationship-specific investments played a very minor role in the
decisions about whether or not to reduce the number of
suppliers. Generally, in situations requiring relationshipspecific investments, companies utilize fewer suppliers because
of the costs of these investments. Thus, these supply bases are
seldom candidates for supply base reduction efforts because
they are already reduced. While this relationship was
mentioned by the case study organizations, it deserves further
investigation and testing.
Table 6 - Continued
Variable
Proposition
P4B – The extent to which transaction-specific
investments are required in the purchase of a product or
service is positively related to the supply base reduction
activities related to that product or service.
Outcome
Not Supported
Standardization
P5 – The extent to which an organization desires to
standardize the products or services that it purchases is
positively related to its supply base reduction activities.
P6 – The extent to which an organization desires to
increase its leverage over its suppliers is positively
associated with its supply base reduction activities.
Supported
P7 – The amount of purchasing centralization for a given
product or service is positively associated with the
supply base reduction activities of that product or
service.
Moderately
Supported
Leverage
Centralization
Supported
Comment
Transaction-specific investment costs have little influence upon
decisions to implement supply base reduction efforts. The only
transaction specific investments that were mentioned by case
study organizations were tooling. Therefore, this proposition is
not supported because of the lack of data and information, not
because it is contradicted by the empirical data.
Six of the ten case study companies indicated that one of the
main reasons for reducing their supply bases was the
opportunity for standardization that existed.
Nine of the ten case studies indicated that one of the reasons
that a particular product or service was selected for supply base
reduction efforts was because the volumes associated with that
product or service had not been effectively leveraged. Many
also indicated that supply base reduction efforts increase the
leverage of suppliers. Overall, however, the case study
organizations believe they can achieve a net gain of power and
negotiating leverage by giving more volume to fewer suppliers.
Many of the case study organizations mentioned that the lack of
a centralized purchasing approach contributed to the growth of
the supply base. These organizations planned to centralize
control as part of their supply base reduction efforts. While
centralizing control makes supply base reduction efforts more
efficient and effective, decentralized purchasing operations can
also benefit from supply base reduction efforts. While all of the
organizations were moving toward more centralized control,
some of the organizations were using relatively decentralized
approaches (see Table 11).
Table 6 – Continued
Variable
Desire to
reduce costs
Proposition
P8 – The extent to which an organization desires to
reduce costs is positively associated with its supply base
reduction activities.
Outcome
Supported
Desire to form
partnerships
P9 – The extent to which an organization desires to form
partnerships with its suppliers is positively related to its
supply base reduction activities.
Supported
Uncertainty or
complexity
P10 – The degree of market uncertainty and complexity
is positively associated with an organization’s supply
base reduction activities.
P11 – The extent to which an organization desires to
implement other “more advanced” purchasing strategies
or supply chain management initiatives is positively
related to its supply base reduction activities.
Not Supported
P12A – Coercive pressures from top management,
government organizations, customers, and professional
organizations lead to increased supply base reduction
activities.
Moderately
Supported
P12B – Mimetic pressures that result from
benchmarking activities and a desire to fit in with other
organizations lead to increased supply base reduction
activities.
Moderately
Supported
Other
purchasing
strategies
Pressure from
others
Moderately
Supported
Comment
A desire to reduce costs was one of the major drivers of supply
base reduction efforts both at the organizational level and at the
level of the specific products and services. Pressures from
customers and increased competition have forced organizations
to look for ways to decrease costs. The case study
organizations view supply base reduction efforts as one way to
accomplish cost reduction goals.
A common theme among the case study respondents was that
reducing the number of suppliers allows organizations to focus
more attention on the remaining suppliers and form better
relationships with them.
The case study organizations mentioned that the possibility of
increased risk or uncertainty tends to influence them away from,
rather than toward supply base reduction efforts.
The case study organizations indicated that supply base
reduction activities made total cost of ownership approaches,
formal supplier performance management systems, lean
manufacturing, early supplier involvement in new product
development, and supplier development activities easier to
accomplish. However, in most cases, these “more advanced”
strategies were not driving supply base reduction efforts.
While pressures from customers and top management appeared
to have a fairly significant influence on decisions to implement
supply base reduction efforts, pressures from professional
organizations had little or no influence on those decisions.
Pressure from government organizations to utilize small,
minority, or disadvantaged suppliers often leads to the addition
of suppliers rather than a reduction.
The increased use of benchmarking appears to have a
moderately high influence on the decision to implement supply
base reduction efforts, but a desire to be like or fit in with other
organizations appears to have almost no influence upon that
decision.
Table 6 - Continued
Variable
Mergers and
acquisitions
Proposition
P12C – Increased competitive pressure leads to
increased supply base reduction activities.
P13A – Mergers and acquisitions at the organizational
level lead to increased supply base reduction activities.
P13B – Mergers and acquisitions within the supply
market lead to increased supply base reduction activities.
Outcome
Supported
Not Supported
Moderately
Supported
Comment
Competitive pressure causes organizations to look for ways to
differentiate their products, reduce costs, or both. Supply base
reduction efforts can assist in both differentiation and cost
reduction efforts.
While mergers and acquisitions can provide opportunities for
supply base reduction efforts, the case study organizations,
some of which had recently been through mergers, did not view
mergers and acquisitions as being a major influence in decisions
to reduce the supply base.
Mergers and acquisitions in the supply base can create larger
suppliers capable of fulfilling the requirements currently filled
by several smaller suppliers. One of the factors that led to the
elimination of a supplier from one of the case study
organization’s supply base was the fact that the supplier had
been acquired by one of the organization’s competitors. Thus,
mergers and acquisitions in the supply base can influence
decisions to implement supply base reduction activities.
Propositions 3, 5, 6, 8, 9, and 12C were supported. These propositions deal respectively
with the purchasing organization’s desire to reduce the number of transactions, standardize
products and services, increase its leverage over its suppliers, reduce costs, form better
relationships with its suppliers, and confront increased competitive pressures. These
propositions all relate to an organization’s costs in some form or another. Thus, removing costs
from the supply chain are one of the main drivers of supply base reduction efforts. These costs
can be removed by reducing the number of transactions, standardizing products, increasing
leverage, and by forming better relationships. One of the main reasons for reducing costs is to
help confront increased competitive pressures.
Propositions 1, 2, 7, 11, 12A, 12B, and 13B were moderately supported by the empirical
evidence. The first four propositions deal with the degree of competition in the supplier market,
the financial importance of the purchased product or service, the amount of purchasing
centralization, and the implementation of “more advanced” supply chain initiatives. The last
three concern coercive pressures, mimetic pressures, and mergers and acquisitions within the
supply base. These moderately supported propositions mainly deal with the organization’s
environment. The organization has little control over the degree of competition in the supplier
market, coercive pressures, mimetic pressures, and mergers and acquisitions. However, the
purchasing organization can change the way that items are purchased (centralized versus
decentralized) and implement other purchasing strategies in order to help cope with the its
environment.
Proposition 12A, while moderately supported, was a complex and mixed result.
Pressures from customers and top management appeared to have a fairly significant influence on
decisions to implement supply base reduction efforts, while pressures from professional
organizations had little or no influence on those decisions. Pressure from government
organizations to utilize small, minority, or disadvantaged suppliers was significant to many of
the case study companies, but often led to the addition of suppliers rather than a reduction.
Propositions 4A, 4B, 10, 13A, and 14 were not supported. These first four propositions
deal with relationship-specific investments, transaction-specific investments, the degree of
market uncertainty, and mergers and acquisitions at the purchasing organization level. The more
relationship-specific investments are required for a given product or service, the smaller the
initial supply base will be. Thus, there is less need for supply base reduction activities in
situations where relationship-specific investments are required. As for market uncertainty, the
possibility of increased risk or uncertainty tends to influence organizations away from, rather
than toward supply base reduction efforts.
The relationship between the top five antecedents of supply base reduction efforts can be
organized as shown in Figure 1. Changes in the level of competitive pressure and changing
customer requirements/expectations are environmental situations or scenarios that many
organizations currently find themselves in. One way of dealing with these pressures and changes
is to reduce costs. These costs can be reduced through supply base reduction efforts by either
forming better relationships or partnerships with fewer suppliers or by reducing the number of
suppliers in order to increase the leverage and power that the buying organization has over its
suppliers. One approach utilizes the “carrot” or incentive approach, the other uses the “stick”
approach. Both approaches may be successful in the short-run, but companies should investigate
and beware of the long-term consequences of either action.
Figure 1
Possible Relationship Between Top Five Supply Base Reduction Antecedents
Environment
Policy
Changes in
level of
competitive
pressure
Desire for
increased
leverage
Outcome
Need for cost
reductions
Changing
customer
requirements/
expectations
Desire for
partnerships
with suppliers
In conclusion, companies can utilize the information presented as part of this research to
better understand the drivers, processes, and potential benefits and drawbacks of supply base
reduction efforts. A better understanding of these items should help organizations successfully
implement supply base reduction efforts by learning from the experiences of the case study
organizations. Supply base reduction processes, if implemented correctly, can increase the
competitive advantage of buying organizations.
As Table 5 indicates, the case study organizations anticipated that reducing the number of
suppliers utilized would lead to increased leverage, reduced costs, and better relationships with
suppliers, which would help them better respond to increased competitive pressure and changing
customer requirements or expectations. On the other hand, pressure from government or
professional organizations, merger and acquisition activity had little or no influence in the
decisions to implement supply base reduction activities; neither did relationship-specific
investment requirements or desire to fit in with or be like other companies. Overall, companies
can use this information to compare the influence that these items have in their supply base
reduction decisions to the influence that these items had in the decisions of the case study
organizations. This guidance will help organizations avoid being overly influenced by items as
well as helping them make sure that their supply base reduction activities are being driven by
items that have been important and useful to other firms.
LIMITATIONS AND FUTURE RESEARCH
One limitation of this study is that it was, with a few exceptions, conducted from the
buying organization’s point of view. This perspective may have biased the answers that were
given to the research questions and findings. Future research into supply base reduction efforts
should seek more input from the suppliers involved in the supply base reduction efforts of the
buying organization. Ideally, both selected and eliminated suppliers should be studied in order to
gain a better understanding of the effects of supply base reduction efforts on the supply base.
This suggestion is supported by the call for more dyadic, buyer-supplier research (Jones et al.
1993).
Another potential limitation of this study was the time frame during which this research
took place. The economic downturn of 2002 may have influenced the results of this study.
Some of the findings may not be as applicable in periods of high growth and limited capacity as
they were during this period of slow growth and excess capacity.
An additional limitation of this study was the size of the case study companies. The
respondent companies were very large companies with average sales of $22.7 billion. Eight of
the ten companies were Fortune 500 companies. These case study organization demographics
could potentially limit the generalizability of the research findings to companies of similar size
and market clout.
Another potential limitation of this study is the type of companies represented by the case
study organizations. Only two of the case study organizations were from the services industry
and only one of the supply base reduction projects dealt with the purchase of services. However,
this research shows that the drivers, processes, and benefits of supply base reduction efforts have
more to do with the product or service being purchased than the industry that is doing the
purchasing. Therefore, the lack of more case studies from the services industry may not be as
much of a limitation as the lack of more service-related supply base reduction activities.
There are several types of research that could potentially arise from this research. The
first involves using the results of this exploratory research to develop and utilize surveys to
further expand the knowledge related to supply base reduction activities. As mentioned above,
one of the common criticisms of case study research is the lack of generalizability. Future
research could help overcome this lack of generalizability by using survey methodologies to
further test the various propositions developed in this research. For example, future research
could examine in greater detail the relationship between supply base reduction efforts and other
purchasing strategies. Overall, the further development and operationalization of the key
variables, constructs, and relationships discussed in this research would be a valuable
contribution to the field of supply chain management.
Future research may also be longitudinal in nature and follow either case study
organizations or survey respondents over an extended period of time to see whether the
antecedents of supply base reduction efforts change over time.
Future research could also investigate in more detail the differences in supply base
reduction drivers at various stages of the product life cycle. In addition, future research could
also help determine whether the position of the firm in the supply chain changes the drivers of
supply base reduction activities.
In order to help overcome one of the potential limitations of the research mentioned
above, similar research should be conducted with smaller organizations to see whether
differences in supply base reduction drivers, processes, or outcomes exist. Similarly, other
samples should be included in future research that add to the breadth of companies studied in this
current research. Firms with different characteristics than those studied as part of this research
could have different antecedents or outcomes than those firms that were included in the current
study.
Lastly, some firms are intentionally reducing their customer bases. Future research could
determine whether any of the drivers of supply base reduction activities are applicable to
customer reduction situations.
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