Incumbent Supplier Research Articles

Disruptive innovations and defence procurement: a study of the Brazilian Navy Case

ABSTRACT This paper deals with the study of the challenges that disruptive technologies represent for industrial defence strategies and procurement policies. It focuses on the incorporation of drones into military arsenals and will be based on a study of the Brazilian Navy case. Drones are a disruptive technology both for the defence industrial base and for their implications for military tactics and the organisational structure of the armed forces. The analysis addresses the main difficulties encountered in incorporating these technologies into traditional military structures and acquisition systems. We explore the ways in which defence procurement adapts (or fails to adapt) to the emergence of disruptive technologies: are traditional military organisations and procurement structures capable of introducing disruptive technologies and engaging in the organisational and operating practices required to do so? Some lessons are drawn from this experience: even when the military relevance of drone technology is widely acknowledged and even officially recognized, procurement strategies and practices have not been able to shift from their focus on incumbent suppliers and conventional systems.

Switching Behavior in the Polish Energy Market—The Importance of Resistance to Change

(1) Background: Consumer switching behavior was one of the expected outcomes of the ongoing competitive reform in the European electricity industry. The aim of this study is to analyze the factors that affect the intention of consumers to switch from their incumbent supplier, who has a strong market position. This article follows the trend of describing and analyzing the situation of incumbent energy suppliers after energy market liberalization. (2) Methods: The research goal was to verify seven research hypotheses regarding switching intentions on the Polish energy market. For this purpose, structural equation modeling analysis using AMOS 29 was conducted. The survey was carried out in 2020, before the SARS-CoV-2 pandemic in Poland, and the research sample consisted of 1216 adults (clients of the incumbent supplier). (3) Results: Special attention was given to customers’ resistance to change, as it was found to be a factor that can impact customers’ decisions to switch, both directly and indirectly. Resistance to change can affect the trust that customers have in their current supplier’s brand, their perception of the costs involved in switching, and their intention to switch. The research also highlighted the importance of brand trust and perceived ease of change in the customers’ decision-making process. (4) Conclusions: An important factor that reduces switching behavior is the customer’s resistance to change; brand trust is a valuable asset that also reduces switching intention.

Strategic Third-Party Product Entry and Mode Choice under Self-Operating Channels and Marketplace Competition: A Game-Theoretical Analysis

To bolster their competitiveness and profitability, prominent e-commerce platforms have embraced dual retailing channels: self-operating channels and online marketplaces. However, a discernible trend is emerging wherein e-commerce platforms are expanding their marketplaces to encompass competitive third-party suppliers. Motivated by this trend, this study sought to examine the strategic integration of a third-party product amidst the competition between a self-operating channel and a marketplace. This investigation involved the development of a game-theoretic model involving a platform and two representative suppliers—an incumbent supplier and a new entrant. Specifically, we delved into establishing an equilibrium partnership between the platform and the new entrant supplier while also evaluating the self-operating strategy of the established supplier. Our analysis uncovered a counterintuitive outcome: an escalation in the commission rate resulted in diminished profits for the established supplier. Furthermore, we ascertained that the economic implications of a competitive product entry pivot significantly on product quality. Lastly, we demonstrated that the revenue-sharing rate plays a pivotal role in influencing the self-operating strategy of the established supplier, and the market equilibrium hinges on the interplay among product quality, the commission rate, and the revenue-sharing rate. These insights provide invaluable guidance for marketers and e-commerce platforms in their strategic decision-making processes.

Analysis of supplier evaluation and selection strategies for sustainable collaboration: A combined approach of best–worst method and TOmada de Decisao Interativa Multicriterio

AbstractSustainable collaboration between manufacturer and supplier has emerged as a crucial supply chain decision for increasing business efficiency. In this study, a theoretical framework is proposed that uses practice‐based view to analyze key performance indicators (KPIs) for developing sustainable collaboration. Further, the current study proposes a novel three‐phase supplier evaluation–selection model to assess the incumbent suppliers on basis of KPIs for showcasing the applicability of theoretical framework. The model uses best–worst method (BWM) in the first phase for generating weights of KPI, adopts the TODIM approach in the second phase for evaluation of suppliers, and develops a supplier classification grid in the third phase for analyzing the impact of each selection strategy to be adopted. The novelty of the study is in evaluation of suppliers based on the KPIs with consideration of desirability as well as the potentiality metric and in consideration of the selection strategies, namely, supplier retention, supplier development, and supplier switching. A case study of India's leading home appliances company is taken to demonstrate the application of the current study. The result of BWM reveals that in terms of supplier's potentiality, “quality” emerges as a strong KPI while KPI “information disclosure” gains more importance while considering supplier's desirability towards strengthening the sustainable relationship. The TODIM grid analysis result suggests that suppliers with high performance in both metrics clearly qualify as the best suppliers and must be retained, while the suppliers performing low in both areas must be switched. For suppliers with metric values in conflict with each other, a trade‐off analysis is needed. Important research and managerial implications are drawn from the validation of the proposed framework, which can be useful for researchers and practitioners.

Which is better for durable goods producers, exclusive or open supply chain?

We explore the supply chain problem of a downstream durable goods monopolist, who chooses one of the following trading modes: an exclusive supply chain with an incumbent supplier or an open supply chain, allowing the monopolist to trade with a new efficient entrant in the future. The expected retail price reduction in the future dampens the profitability of the original firms. An efficient entrant's entry magnifies such a price reduction, causing a further reduction of original firms' joint profits. In equilibrium, the downstream monopolist chooses the exclusive supply chain to escape further price reductions, although it expects efficient entry.

Technology investments into a supplier with upstream entry

This study examines the effect of the upstream entry in a supply chain, where one manufacturer (she), facing the entry of one potential supplier, makes technology investments into the incumbent supplier (he) or the entrant supplier. We first find the upstream entry may motivate the manufacturer to make more investments into the incumbent, unless the entrant has a production cost advantage over the incumbent, given a high investment cost. Our work further reveals a ‘triple win’ outcome may be achievable for all players, as not only the manufacturer but surprisingly the incumbent can receive higher profits after the upstream entry, no matter which supplier she invests in. Moreover, the manufacturer’s optional strategies of technology investee are offered in the presence of the entrant. Given a low production cost of the incumbent, the manufacturer should invest in the entrant, if the production cost ratio between the two suppliers is large and the investment cost difference between them is small, or if the ratio is very large, and the difference is small while the incumbent’s investment cost is small; and she should invest in the incumbent otherwise. Given a high production cost of the incumbent, the manufacturer should invest in the entrant, if the production cost ratio is medium (large), and meanwhile the incumbent’s investment cost, holding a small difference with the entrant’s, is large (small); and she should invest in the incumbent otherwise. Finally, one extension, where the manufacturer invests into both suppliers, is discussed.

When switching costs cause market power: Rubber processing in Indonesia

AbstractSuppliers of agricultural output incur switching costs (SCs) when choosing new buyers, allowing buyers to exercise oligopsonistic market power, as SCs help buyers to mark down prices for incumbent suppliers. This article conceptualizes the idea of SCs and suggests an empirical strategy for quantifying them through an estimation of farm supply to specific buyers. The model incorporates price differences between buyers, revealing buyers' anticipations of suppliers' SCs. The approach is applied to the Indonesian rubber market, employing a data set of daily purchasing prices and less frequent quantities of individual sales instances. Results indicate that SCs exist and are at about 3% of the farm gate price, leading to substantial redistribution from suppliers to buyers of agricultural output.

Supplier switching versus supplier development under risk: A mathematical modelling approach

In this study a mathematical modeling approach is proposed to deal with problematic suppliers under risk. The decisions to make include a) developing the incumbent supplier to improve its performance (development), b) switching to an appropriate alternative supplier (switching), and c) continuing with the incumbent supplier (status quo). The lost market share is proposed as a novel variable to evaluate decision risks considering the core performance measures of quality, cost, and delivery. The problem is encountered with two important uncertain parameters including investment-improvement coefficient and alternative supplier performance scores. A comprehensive analysis is conducted based on the uncertain parameters and decision risks at different confidence levels. As the results indicate, the decision is highly dependent on the risk aversion level of the decision maker. Furthermore, the risk of the development decision is independent of the current performance of the incumbent supplier and the desired performance of the buyer. Inversely, the risk of the switching decision depends on the current performance of the incumbent supplier. It is also found that the variation coefficient of the investment-improvement parameter plays a critical role in the development decision. Finally, a decision matrix is developed as a decision support tool for managerial guidelines regarding preferable decisions from the risk point of view.

Direct versus indirect penalties for supply contracts in high-tech industry

Unlike consumer goods industry, a high-tech manufacturer (OEM) often amortizes new product development costs over multiple generations, where demand for each generation is based on advance orders (i.e., known demand) and additional uncertain demand. Also, due to economic regulatory reasons, high-tech OEMs usually source from a single supplier. Relative to the high retail price, the costs for a supplier of producing high-tech components are low. Consequently, incentives are misaligned: the OEM faces relatively high under-stock costs and the supplier faces high over-stock costs.In this paper, we examine supply contracts that are intended to align the incentives between a high-tech OEM and a supplier so that the supplier will invest adequate and yet non-verifiable capacity to meet the OEM’s demand. When focusing on a single generation, the manufacturer can coordinate a decentralized supply chain and extract all surplus by augmenting a traditional wholesale price contract with a “contingent penalty” should the supplier fail to fulfill the OEM’s demand. When the resulting penalty is too high to be enforceable, we consider a new class of “contingent renewal” wholesale price contracts with a stipulation: the OEM will renew the contract with the incumbent supplier for the next generation only when the supplier can fulfill the demand for the current generation. By using non-renewal as an implicit penalty, we show that the contingent renewal contract can coordinate the supply chain. While the OEM can capture the bulk of the supply chain profit, this innovative contract cannot enable the OEM to extract the entire surplus.

Exploring customer satisfaction in Great Britain's retail energy sector part II: The increasing use of Trustpilot online reviews

GB retail energy suppliers significantly increased their use of Trustpilot from 2019 to 2020. Company executives explain how inviting reviews enabled them to improve customer service as well as increase TrustScore ratings. Some new entrants were particularly innovative. All but one of the large former incumbent suppliers then began to invite reviews and increased their TrustScores. TrustScores of suppliers exiting the market have increased in recent years, suggesting that customer dissatisfaction with suppliers was not the reason for their exit.

Buyer’s strategic demand information sharing with an upstream echelon for entry promotion

Nowadays, because of the prevalence of information technology, the question of whether or not a firm should share various information vertically with outside firms constituting a supply chain has become a critical issue. Given this environmental change, this paper investigates the information sharing problem of whether a buyer purchasing products from a supplier should disclose its demand information in a noncooperative game setting. To date, a number of game-theoretic studies have shown that the optimal strategy for the buyer pursuing only its own profit is to disclose no demand information, because information disclosure causes a portion of the profit to be drained vertically from the buyer to the supplier. Contrary to this conventional insight in the literature, we demonstrate that the buyer can increase its own profit by fully disclosing information when there exists not only an incumbent supplier currently operating, but also a potential alternative supplier who waits for the chance to enter the upstream market. This finding means that the well-known result in the information sharing game in a supply chain can be reversed when there is an entry threat at the upstream supplier level. This result provides the practical implication that a buyer in a supply chain can strategically reveal demand information, which is seemingly disadvantageous to the buyer, to improve its profit through promoting the entry of another supplier as an alternative source of products. Consequently, we gain managerial insights that differ significantly from existing ones, which is the unique contribution of this study.

“Now or Later?” When to Deploy Qualification Screening in Open-Bid Auction for Re-Sourcing

Designing Open-bid Procurement Auction with Supplier Qualification Screenings Manufacturers often use re-sourcing initiatives to keep their suppliers’ pricing competitive; e.g., new entrant suppliers are identified and invited to compete with the incumbent supplier for supply contracts in an open-bid auction. To ensure that entrant suppliers have the capability of executing the contract, the conventional approach for many manufacturers is to conduct qualification screenings on all the entrants prior to auction bidding and only allow qualified entrant suppliers to compete in the auction. In “‘Now or Later?’ When to Deploy Qualification Screening in Open-Bid Auction for Re-Sourcing”, Zhang, Chen, and Katok explore an alternative arrangement of this process where all entrant suppliers are invited for bidding first before qualification screenings are selectively conducted afterward to determine the contract winner. This new approach helps reduce the waste of manufacturers’ screening efforts on suppliers with uncompetitive bids but in the meantime introduces incentives for less competitive supplier bidding behavior. They provide analytical and numerical evidence that this new approach could be very effective in managing manufacturers’ procurement costs.

Changing Energy Supplier on the Market with a Strong Position of Incumbent Suppliers—Polish Example

The purpose of the study is to identify factors affecting the intention to change an energy supplier. This is in a country, Poland, where competition in the energy market has been intensifying over several years, but incumbent suppliers still have an extremely strong position on the market, and the tendency to change an energy supplier is relatively low. The survey was conducted in 2020 on a sample of 1216 adults. The research results were used for a multigroup SEM (Structural Equation Modelling) analysis using AMOS 26. The main findings indicated a strong impact on a general image of a company, as well as the lack of importance of a green image of the current energy supplier. In the general research approach, there are no visible differences in the impact of the perceived price transparency on the intention to switch the supplier. However, taking into consideration two groups (a low energy bill vs. a high energy bill), some interesting differences are visible. In the markets with low consumers’ intention to switch, the strong position of incumbent suppliers is due to their exceptionally strong image in these markets. Spending time on maintenance is the biggest disadvantage for new energy suppliers who, when entering the market, have to look for differentiators.

Choice and opportunity on the welfare care market: An experimental evaluation of decision‐making in a context of individual funding policy

AbstractIndividual funding schemes are increasingly implemented to organize public welfare services and can be considered as a prime example of the marketization of social care. Clients receive a budget and can “shop” on the welfare market. Current knowledge about the impact of individual funding schemes on choice opportunities for people with an intellectual disability is inconclusive. We conducted a vignette experiment in the context of the Flemish (Belgian) individual funding scheme for people with a disability, using 610 close relatives of people with an intellectual disability as subjects. The respondents were presented with hypothetical situations in which they had to express their intention to change current care provision into care via personal assistance. We find that dissatisfaction with services and having a supportive network increases the intention to change care. Professional support from the incumbent provider does not have a significant impact. We conclude that the promise of choice, as assumed with marketized public services, is likely to be fulfilled only under particular conditions. This entails risks in terms of equal opportunities for clients receiving public services in the context of welfare markets.

Lease or Sale: When a Durable Goods Monopolist Can Choose Supply Chain’s Openness

We construct a two-period model of the supply chain's openness in a durable goods market by introducing two marketing modes: leasing and selling. Given a marketing mode, at the beginning of the first period, an incumbent supplier and the downstream monopolist choose one of the trading modes: (i) a two-period exclusive supply chain or (ii) an open supply chain, allowing the downstream monopolist to trade with an efficient supplier in the second period. We show that the downstream monopolist always chooses the open supply chain in the leasing mode, although the exclusive supply chain is attainable in the selling mode if the incumbent supplier's efficiency is high. Moreover, when we allow the downstream monopolist to choose the marketing mode endogenously before the first period, it chooses the selling mode if the incumbent supplier's efficiency is low; otherwise, it chooses the leasing mode. Regardless of the chosen marketing mode, the open supply chain always occurs on the equilibrium path, implying that the recent advancement of ICT to enhance leasing may discourage choosing the exclusive supply chain.

Configuring and pricing smart coproductive services

Coproductive services involve the active participation of customers by exerting physical/mental effort as a part of the service process to co-create value. While the demand for coproduction models is surging, there are complaints about customer experience and service system design. Owing to these dissatisfaction issues, providers are now shifting away from self-service models, towards the notion of smart service; where service tasks are efficiently divided between the provider and the customer. This study addresses the business problem of the configuration and pricing of such a smart coproduction service channel targeted at a segment within an incumbent provider's captive customer base. We analyze the relative preference of the popular uniform pricing policy against a new proposed policy that accounts for the strategic behaviour of customers. This study uses a suite of analytical modelling tools to address this problem. We analyze the applicability of the alternate pricing regimes when providers are pursuing certain prevalent marketing strategies. We also analyze the influence of relative co-creation productivity between the provider and customer on the choice of pricing regime. We find that the popularity of the uniform pricing model can be explained with its simplicity in configuration and applicability. On the other hand, we find that the proposed strategic pricing regime not only induces customers to adopt coproduction channels but also enables providers to charge a price premium where possible. Furthermore, our analysis explains several observations in practice w.r.t. uptake and proliferation of coproduction channels. We also present useful guidelines to managers for configuring and pricing coproduction service channels.

Which Is Better for Durable Goods Producers, Exclusive or Open Supply Chain?

We explore the supply chain problem of a downstream durable goods monopolist, who chooses one of the following trading modes: an exclusive supply chain with an incumbent supplier or an open supply chain, allowing the monopolist to trade with a new efficient entrant in the future. The expected retail price reduction in the future dampens the profitability of the original firms. An efficient entrant's entry magnifies such a price reduction, causing a further reduction of original firms' joint profits. In equilibrium, the downstream monopolist chooses the exclusive supply chain to escape further price reductions, although it expects efficient entry.

Has the global expansion of energy markets truly improved energy security?

Global energy trade volumes have sharply increased over the past three decades, creating a more connected energy system. Increasing demand for energy, the emergence of unconventional fossil fuels, increasing environmental awareness, and technological progress in energy technologies have led to significant changes in national energy mixes and in global trade patterns. For many countries, energy security is the dominant concern in the design of energy trade strategies and policies. In this paper, we present a systematic analysis of the factors shaping the global energy trade network, considering several energy security indicators as well as broader economic considerations. We observe that, in line with energy security considerations, most countries have indeed increased the number of their trade connections resulting in a more densely connected global energy network. However, a substantial part of countries’ energy commodity imports often still comes only from a few incumbent suppliers. Due to this supplier concentration global energy security does not increase with the expansion of the energy markets. Increasing energy security will require fundamental changes in the organization of the energy market in terms of contracts and the flexibility of energy infrastructures.

Communication-Based Approach for Promoting Energy Consumer Switching: Some Evidence from Ofgem’s Database Trials in the United Kingdom

Prompted by rising concern about weak consumer switching and the practice of price discrimination, over the period of 2016–2019, the Office of Gas and Electricity Markets (Ofgem) undertook a series of trials on communication-based interventions to encourage consumer switching in the United Kingdom. The main purpose of this paper is to assess the experience of these Ofgem trials with a view to draw some lessons for policy makers. The analytical framework adopted for this purpose is informed by existing literature on the barriers for consumer switching. The results of the analysis suggest that while the Ofgem trials have made positive impacts on consumer switching, these impacts varied significantly across the trials, suggesting that some interventions were more effective than others. Further, the overall impacts of the Ofgem trials were moderate, as around 70% of participants did not switch suppliers even in the most impactful trial. This reflects a general lack of understanding in the literature about the behaviour-influencing factors, their impacts, and their context-connects. By implication, the difficulty in stimulating consumer switching, as demonstrated by the Ofgem trials, suggests that weak consumer switching and the practice of price discrimination may simply reflect significant competition, rather than a lack of it, especially if retail margins are not greater than the competitive level. In this case, the communication-based intervention aimed at encouraging consumer switching may lead to further price discrimination, especially for the most vulnerable consumers, who are more likely to stay with their incumbent suppliers.

Two energy suppliers are better than one: Survey experiments on consumer engagement with local energy in GB

Usually consumers have a single energy supplier. Permitting consumers to take on additional contracts with local suppliers in a multiple-supplier model could support growth of local renewable energy. The aims of this study were to assess the attractiveness of a multiple-supplier model and to understand whether consumers would be more likely to engage with local energy suppliers in a multiple-supplier model or the current single supplier model. An additional aim was to explore the role of default effects and cognitive biases associated with remaining with incumbent suppliers (loss-aversion, cognitive effort and implied endorsement). Two nationally representative survey experiments were conducted in Great Britain (n = 1042, n = 762). Results showed that participants were significantly more likely to engage with local energy suppliers under a multiple-supplier model than the current single supplier model. In one experiment, consumers’ preference for adding a local supplier under a multiple-supplier model was so strong that it overcame default effects. The perception that the supplier has been recommended (i.e. implied endorsement) was the most robust mechanism associated with remaining with default suppliers, suggesting that explicit endorsement of local energy suppliers may encourage uptake. Results suggest multiple-supplier models are likely to be a promising avenue for increased energy market engagement.