An empirical analysis of supply management: effects of the single versus multiple sourcing trade-off on firm performance

Resumen

The lean production approach proposes a transparent and lasting relation with few suppliers in order to have a more reliable supply, to minimize the inventory levels and to guarantee a better process quality. On the other hand, the multiple sourcing approach assumes that the diversification of supply sources is a more adequate strategy, as the competition between suppliers creates better purchasing conditions for the customer. This article intends to empirically verify whether there is an association between the strategies of supplier diversification or supplier concentration and the company’s performance. The study consists of a multiple crosssectional analysis that comprises annual data of the period from 1997 up to 2003, comprehending a set of 176 manufacturing companies listed at the São Paulo Stock Exchange. The data analysis included two approaches to a quadratic model: a static (for short-term effects) and a dynamic (for long-term effects) one. The main results point to a significant association between the concentration of the supplier portfolio and the average period of inventory. However, the analysis did not find a supplier portfolio composition that would maximize the company’s performance by minimizing the average period of inventory.

Key words: supply management, Brazilian companies, corporate performance.