How does supplier integration work?

A key premise of the drive to integrate the supply chain is that working with suppliers can lead to better and more marketable products. When this is done early in the new product development process it can lead to the development of new ideas and the sharing of risk.

Why integrate with suppliers?

Integrating at later stages can improve the feasibility of ideas and potentially the testing of products and services. Integrating with suppliers for a long period can help build trust between the various parties and allow the understanding of each other’s capabilities.

Is it always right to collaborate?

Yet more recent research suggests some downsides to integration (e.g. Tsinopoulos et al., 2019 and Villena et al., 2011). One reason for this is the potential rigidity of existing relationships. When relationships have been in place for a very long time, developing new ones – where the potential for learning is greater – is more difficult. Also, if suppliers know they are locked in into a long-term relationship with a customer, the incentive to innovate and become competitive reduces. When this is the case, the organisation may be looking for ideas within its existing supply base. Yet, as we have established so far, some of the better ideas and opportunities may be beyond this.

The next steps

So, two important questions to answer are: how much to integrate, and how does an organisation know that it has integrated too much?

Although research is not prescriptive about how and when to identify problems of integration, it does offer some useful recommendations. One is to frequently re-evaluate the benefits of the relationships with suppliers. This can help reveal whether the benefits gained from working with a smaller supplier base, in terms of innovation, are still there or not. Another is to ensure that there are mechanisms and processes in place that continuously explore the external environment for opportunities.

References

Tsinopoulos, C., Yan, J. and Sousa, C. M. P. (2019) ‘Abandoning innovation activities and performance: The moderating role of openness’, Research Policy, Vol.48(6), pp. 1399-1411.

Villena, V.H., Revilla, E. and Choi, T.Y. (2011) ‘The dark side of buyer-supplier relationships: A social capital perspective’, Journal of Operations Management, Vol.29, pp. 561-576.