Early Supplier Involvement in Customer New Product Development: A Contingency Model of Component Supplier Intentions

This study develops and tests a model of early supplier involvement in equipment manufacturers (OEMs) develop higher quality products more quickly (Purchasing, 1991b). By means of close customer new product development. Four positive influences on supplier intention for early supplier involvement (ESI) are hypothesized: (1) cusrelationships with customers, suppliers are able to reduce their inventory holding costs, as well as reduce such discretionary tomer promise; (2) interdependence; (3) customer technological innovativeness; and (4) supplier technical capability. Customer adherence to expenses as administrative, selling, and overhead costs (Kalwani and Narayandas, 1995). Thus, developing, maintaining, agreements is hypothesized to moderate the influence of customer promise, supplier technical capability, and customer technical innovativeness on and enhancing relationships with customers may be effective as a general strategy (Morgan and Hunt, 1994). supplier intention for ESI. These hypotheses were supported when tested with data from a mail survey returned by 422 (21.4%) component suppliAs an extension of relationship building generally, selected component suppliers are sometimes invited to participate in ers. For a subset of respondents, the survey data were compared to reports from a second key informant to assess data quality. A sevenoriginal equipment manufacturers’ new product development. Because many suppliers want to engage in long-term relationfactor structural equation model with 32 measures was assessed with Lisrel to test the hypotheses. A multigroup structural equation was used ships, “supplier managers must systematically decide which customer firms are in their firm’s best interests to have collaboto test the contingency hypotheses. Results also show that customer power advantage decreases customer promise and customer adherence to agreerative relationships with” (Anderson and Narus, 1991, p. 113). Clearly, relationships with some customers will help a supplier ments. The results support our contention that suppliers should attend to three key areas: (1) a customer’s exchange behaviors; (2) the level of more than other relationships. In an era of OEMs consolidating their supply bases, forming close ties means remaining in a customer power advantage and interdependence; and (3) technical factors. J BUSN RES 2000. 47.173–190.  1999 Elsevier Science Inc. customer’s consideration set. Survivors of supplier shake-outs often expect, and sometimes receive, larger current volumes, forward volume promises, single or dual source agreements, and so on. However, anecdotal evidence leads us to suggest that supplier benefits from close partnering are not universal. Suppliers benefit from adopting a strategy of maintaining In fact, powerful customers have a long history of demanding long-term relationships with their customers rather than and receiving price rollbacks and abrogating supply agreeemploying a transactional approach to servicing; suppliments when it suits them (Business Week, 1994). Moreover, ers with a number of long-term customer relationships outpersuppliers selling into oligopsonies may find that building very formed suppliers with fewer, if any, such relationships customclose ties with one customer precludes securing business from ers (Kalwani and Narayandas, 1995). Cooperation between the customer’s competitors. The key issue for suppliers, then, suppliers and their customers is widely believed to lead to is not whether to engage in long-term customer relationships, better outcomes for both exchange parties (Heide and John, but rather to understand when they should be willing to 1990). Such cooperation is often credited with helping original establish partnership with a particular customer. The main purpose of this study is to explore in-depth the Address correspondence to: Dr. D. W. LaBahn, California State University– supplier’s perspective on how much to participate in a customFullerton, School of Business Administration and Economics, P.O. Box 6848, Fullerton, CA 92834-6848. E-mail [email protected] er’s new product development. The level of involvement a