Operational efficiency or transaction costs: Why J.I.T. manufacturers really engage in long -term relationships

Within the last two decades, Original Equipment Manufacturers have sought to consolidate a supply chain competitive edge in the market place based on improved manufacturing coordination, faster capability transfer across supply chain partners and reduction of negotiation costs. Nevertheless, despite “Japanese-style” relationships being a multi-faceted problem, the strategic management literature has overemphasized the role of “Japanese-style relationships” as “safeguards” of quasi-rents, in detriment of their use as the means through which better production coordination and faster cross-firm capability development occur. Thus, questions remain unanswered: (a) should those partners who do not possess specific capabilities also interact through more structured alliances, or simply develop arm\u27s length interactions? (b) how should OEM-supplier dyads structure their relationship when aiming at faster capability transfer? To this end, this dissertation studies the effect of relationship attributes on three related but different forms of supplier performance: Transaction Costs, Operational Efficiency and Cross-firm learning. The study draws on three theoretical backgrounds: Manufacturing Coordination, Transaction Cost Economics and Learning Alliances theories. The empirical findings, based on a thorough survey carried out in the equipment industry, indicate that even “commodity” ET suppliers benefit from carefully structured relationships, confirming the economic benefits of manufacturing coordination through relationship management. In addition, where JIT product exchanges are supported by specific investments, carefully structured relationships not only safeguard partners against higher costs of transacting, but they also promote faster knowledge transfer across alliance partners. As a consequence, OEMs and suppliers speed up the creation of more valuable specific routines and processes, which leads to an even higher level of manufacturing efficiency. Although OEM-sponsored Supplier-Development-Programs, when also supported by well designed supplier relationships, seem to impact supplier operational performance positively, most OEMs seem to be more comfortable with the old arm\u27s length relationship approach. That is, OEMs in the equipment industry today are used to “pressuring” their suppliers to buy market-available/generic training programs. In this context, this dissertation helps OEMs and suppliers understand the nuances of relationship structures in ways that lead to improved manufacturing coordination, faster knowledge transfer and improvement as well as lower negotiation costs