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The Effects of Major Customer Networks on Supplier Profitability

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  • Yoon Hee Kim

Abstract

Whereas extant research on supply chain networks focuses mainly on the networks of major suppliers, this study fills a gap in the literature by exploring the relational and structural characteristics of networks of major customers and their impact on the financial performance of suppliers. Based on the major customer disclosure of the Statements of Financial Accounting Standards 131, this study identifies three dimensions of the major customer networks of U.S. public firms—customer concentration, mutual dependence and customer interconnection—and investigates how they affect the supplier's return on assets (ROAt+1) and return on sales (ROSt+1). Drawing on 717 suppliers and their major customer networks from the Compustat database, the study shows that customer concentration and interconnection negatively affect the supplier's ROAt+1 and ROSt+1, whereas mutual dependence enhances them and reduces the negative impact of customer concentration on the supplier's profitability. This positive interaction between customer concentration and mutual dependence demonstrates how two governance principles, power and embeddedness, simultaneously affect concentrated relationships with major customers.

Suggested Citation

  • Yoon Hee Kim, 2017. "The Effects of Major Customer Networks on Supplier Profitability," Journal of Supply Chain Management, Institute for Supply Management, vol. 53(1), pages 26-40, January.
    • Handle: RePEc:bla:jscmgt:v:53:y:2017:i:1:p:26-40
    DOI: 10.1111/jscm.12118
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    Cited by:

    1. Xiao, Zhenxin & Yang, Bin & Dong, Songting & Chuoyan Dong, Maggie, 2024. "B2B strategies for surviving global crises: A resource dependence perspective on the COVID−19 pandemic," Journal of Business Research, Elsevier, vol. 172(C).
    2. Shi, Jinyan & Yang, Jianheng & Li, Yanxi, 2020. "Does supply network location affect corporate investment efficiency?," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Jeremy J. Kovach & Morgan Swink & Mauricio Rodriguez, 2023. "Delaying supplier payments to increase buyer profits," Journal of Supply Chain Management, Institute for Supply Management, vol. 59(1), pages 26-47, January.
    4. Seongtae Kim & Sangho Chae & Stephan M. Wagner & Jason W. Miller, 2022. "Buyer abusive behavior and supplier welfare: An empirical study of truck owner–operators," Journal of Supply Chain Management, Institute for Supply Management, vol. 58(4), pages 90-111, October.
    5. Dong-Young Kim & Pengcheng Zhu & Wenli Xiao & Yen-Ting Lin, 2020. "Customer degree centrality and supplier performance: the moderating role of resource dependence," Operations Management Research, Springer, vol. 13(1), pages 22-38, June.
    6. Zhang, Jiping & Mo, Haimiao & Hu, Zhijian & Zhang, Tianjiao, 2024. "The effect of stability and concentration of upstream and downstream relationships of focal firms on two-level trade credit," International Journal of Production Economics, Elsevier, vol. 270(C).
    7. Dan Dhaliwal & Paul N. Michas & Vic Naiker & Divesh Sharma, 2020. "Greater Reliance on Major Customers and Auditor Going‐Concern Opinions," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 160-188, March.
    8. Ahrom Kang & Joongsan Oh, 2023. "The configuration and evolution of Korean automotive supply network: an empirical study based on k-core network analysis," Operations Management Research, Springer, vol. 16(3), pages 1251-1270, September.
    9. Feng Yang & Tingwei Chen & Zongbin Zhang & Kan Yao, 2024. "Firm ESG Performance and Supply-Chain Total-Factor Productivity," Sustainability, MDPI, vol. 16(20), pages 1-19, October.
    10. In, Joonhwan & Bradley, Randy V. & Bichescu, Bogdan C. & Smith, Antoinette L., 2019. "Breaking the chain: GPO changes and hospital supply cost efficiency," International Journal of Production Economics, Elsevier, vol. 218(C), pages 297-307.
    11. Kwak, Kiho & Kim, Namil, 2020. "Concentrate or disperse? The relationship between major customer concentration and supplier profitability and the moderating role of insider ownership," Journal of Business Research, Elsevier, vol. 109(C), pages 648-658.
    12. (Daniel) Kao, Ta-Wei & Su, Hung-Chung & Chen, Yi-Su, 2019. "The curvilinear relationships between structural embeddedness and productive efficiency: An exploratory study," International Journal of Production Economics, Elsevier, vol. 212(C), pages 176-185.
    13. Melek Akın Ateş & Robert Suurmond & Davide Luzzini & Daniel Krause, 2022. "Order from chaos: A meta‐analysis of supply chain complexity and firm performance," Journal of Supply Chain Management, Institute for Supply Management, vol. 58(1), pages 3-30, January.

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