The role of supplier switching costs and supply chain responsiveness

Abstract

This study explored the effect of supplier switching costs on supply chain responsiveness in Sri Lankan Small and Medium-scale manufacturing firms (SMEs). It considered three types of switching costs: procedural switching costs, financial switching costs, and relational switching costs. Survey data were collected from 188 manufacturing firms and analysed using Structural Equation Modelling (SEM). The results revealed that, procedural switching cost was positively related to supply chain responsiveness, while the relational switching cost, the most important predictor, was negatively related. The relationship between financial switching costs and supply chain responsiveness was not significant. No significant direct relationship was found between supplier switching costs and supply chain responsiveness either, possibly due to a different set of intervening variables influencing this relationship. No significant impact was found on the price and product competition in the context of Sri Lankan manufacturing sector indicating that supplier switching costs do not play a significant role on these variables. Yet, there may be an influence from intervening variables due to internal organisational situation and external factors such as market conditions. Switching suppliers is not a big problem for some companies because they already have well-defined supplier networks with multiple providers for the same raw materials [1]. However, this differs based on companies’ relationships with suppliers (long-term or short-term contracts) and the availability of resource supplies [2].