Published In
Journal of Business Logistics
Document Type
Post-Print
Publication Date
3-2019
Subjects
Industrial procurement, Organizational justice, Automobile supplies industry, Automobile supplies industry -- Longitudinal studies
Abstract
“You get what you pay for” is one of life's lessons that predominates in purchasing decisions individuals make in their personal lives. The results of this study suggest this lesson should also prevail among management when price‐related purchasing decisions in businesses are being made. An evaluation of over 1,700 purchasing instances across seven years of a longitudinal panel data set collected from Tier 1 production suppliers to the six major North American automotive Original Equipment Manufacturers (OEMs), Chrysler, Ford, General Motors, Honda, Nissan, and Toyota, found that suppliers compensate for price concessions and price reduction pressure from the OEM in the year following the concession, by reducing product quality, service support, and R&D expenditures associated with goods provided to the OEM. This industry is particularly relevant because it is highly adversarial, yet at the same time reliant on interdependence. The results show that supplier price concessions granted to an OEM led to compensatory supplier behaviors of reduced quality and R&D expenditures toward that OEM. Further, the results suggest that the organizational justice dimensions of distributive justice, procedural justice, interpersonal justice, and informational justice can ameliorate negative supplier compensatory activities. A buyer–supplier relational environment that engenders organizational justice tactics such as open and honest communication with suppliers provides suppliers the expectation of an acceptable return on business over the long term, provides help to suppliers to reduce costs, and builds supplier trust of the OEM had generally positive effects on quality, service, and R&D expenditures. From a management perspective, these results indicate there is a very real risk versus reward issue associated with pressuring suppliers for price reductions.
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DOI
10.1111/jbl.12205
Persistent Identifier
https://archives.pdx.edu/ds/psu/30358
Citation Details
Published as: Carnovale, S., Henke, J. W., DuHadway, S., & Yeniyurt, S. (2019). Unintended Consequences: How Suppliers Compensate for Price Concessions and the Role of Organizational Justice in Buyer‐Supplier Relations. Journal of Business Logistics, 40(3), 187–203.
Description
This is the author’s version of a work that was accepted for publication in the Journal of Business Logistics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Business Logistics, 40(3), 187–203. The final published version is available online at: https://doi.org/10.1111/jbl.12205
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