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The supply base and its complexity: Implications for transaction costs, risks, responsiveness, and innovation
Author(s) -
Choi Thomas Y.,
Krause Daniel R.
Publication year - 2006
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/j.jom.2005.07.002
Subject(s) - supply chain , business , purchasing , transaction cost , industrial organization , database transaction , supply chain management , supply network , supply management , service management , cost reduction , supplier relationship management , marketing , commerce , microeconomics , economics , computer science , finance , power (physics) , physics , quantum mechanics , programming language
A supply base is defined as the portion of a supply network that is actively managed by a buying company. The buying company, referred to as the focal company, manages the suppliers in the supply base through contracts and purchasing of parts, materials, and services. To facilitate better management of a supply base, we observe “complexity” as a key area of managerial consideration and apply the literature on complexity to the supply base. Supply base complexity is conceptualized in three dimensions: (1) the number of suppliers in the supply base, (2) the degree of differentiation among these suppliers, and (3) the level of inter‐relationships among the suppliers. Four propositions have been formulated in terms of four major areas of research within supply chain management—transaction costs, supply risk, supplier responsiveness, and supplier innovation. Corollary propositions are also stated. Although a reduction in complexity may lead to lower transaction costs and increased supplier responsiveness, in certain circumstances it may also increase supply risk and reduce supplier innovation. Therefore, reducing supply base complexity in general may be a cost‐efficient approach, but blindly reducing it may potentially decrease the buying company's overall competitiveness.