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History
Publishing Programs
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(Volume 5, Issue 4)
Douglas W. LaBahn, California State University - Fullerton
"Avoiding Over Reliance on A Single Large
Customer: The Impact of Technical Capability, Product Development and
Alternative Key Customers"
Abstract
This study examines three
investments that component suppliers can make to circumvent their large customers' ability to achieve significant
power advantages. A large scale
survey of component suppliers was conducted approximately 12 to 24 months after
Original Equipment Manufacturers (OEMs) began flexing their increased purchasing
power to demand price reductions and costly design services. The results show
that suppliers' technical capability, suppliers' efforts to develop
segment-focused products, and supplier investments to build relationships with
alternative key customers lessened
their large customers' power
advantage. The urgency of balancing relationships with large OEMs is illustrated with the finding that
customers' power advantage has a
strong negative influence on the suppliers' forecast of their own performance.
In contrast, no relationship between forecasted performance and the level of
interdependence between large
OEMs and their suppliers was found. The rapid increase of customer power across a broad range of industries
has placed many companies in situations similar to the component suppliers
investigated in this study.
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