The influence of supplier development programs on supplier performance

Abstract

A major responsibility of purchasing professionals is to monitor the performance of suppliers in their supply chain system. Governance relates to processes and decisions that seek to define actions, and verify supplier performance. Governance mechanisms are the tools in which power and risk are stabilized in interorganizational relationships. As a governance mechanism, supplier development programs (SDPs), which include supplier bilateral/communications, incentives, competitive pressures and direct involvement, represent a surrogate form of power exerted by buying organizations. Bilateral/communication is defined as two-way communication using an evaluation process. The ultimate success of SDPs must assess and be mindful of the supplying organizations’ vantage point. Little is understood about how SDPs influence supplier performance. This is the first large-scale empirical study to investigate the use of supplier development programs (SDPs) as a surrogate for governance power on supplying organizations. Using structural equation modeling and primary data from 141 first-tier North American automotive suppliers, the results suggest that the relationship between SDP and supplier performance is mediated by bilateral/communication, cooperation and commitment, and that SDPs directly affect the relationship between buying and selling organizations. It was found that it is fruitless for buying organizations to implement bilateral/communications, incentives, competitive pressure or direct involvement without first building exceptional relationships with their suppliers. Finally, the findings suggest that bilateral/communications, cooperation and commitment are key drivers of supplier performance.