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Wilfrid Laurier University School of Business & Economics
October 31, 2014

Canadian Excellence

Events


School of Business & Economics

The Paradox of Embeddedness: Financial Benefits and Risks of Dependency in Triadic Supply Chain Relationships


May 7/14

Date: May 7/14
Time: 11:30 - 13:00
Location: SBE 1220
Cost: Free

You are invited to attend the next Centre for Supply Chain Management speaker series:
Speaker: Dr. Yoon Hee Kim
Assisstant Professor in Operations Management
Richard Ivey School of Business
University of Western Ontario
Date: Friday, Mar 7
Time: 11:30 am
Room: SBE 1220
The Paradox of Embeddedness: Financial Benefits and Risks of Dependency in Triadic Supply Chain Relationships


Abstract
The economic ramifications of interdependent relationships with suppliers and customers have long been of interest to supply chain managers and academics alike. Whereas previous studies have focused on the benefits or risks of embedded relationships that accrue to buying firms, this study simultaneously investigates the effects of a supplier's and a customer's embeddedness on a focal firm's financial performance in triadic supply chain relationships. Using 1,217 unique focal firm-years for U.S. firms from Compustat, we find that supplier and customer embeddedness each increases the focal firm's performance in terms of return on assets (ROA), return on sales (ROS), and market value, by increasing asset turnover. Customer embeddedness,however, shows diminishing returns to the focal firm, while supplier embeddness does not. Specifically, customer embeddedness enhances the focal firm's profitability up to a point but, beyond that threshold, reduces its ROA and market value through increasing inventory levels and selling expenses. Embedded relationships with customers thus entail not only benefits, but also financial risks. Supply chain managers need to develop close relationships with both suppliers and customers, but they should maintain the appropriate level of customer embeddedness that maximizes the benefits while minimizing risk.

Contact: Karen Cleaver
Phone: 519 884 0170 x2059

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