The king of retail: New study shows symbiotic relationship between major retailers and suppliers

May 30, 2012

(Phys.org) -- A new study by supply-chain researchers at the University of Arkansas shows that the relationship between major retailers such as Walmart and Target and their suppliers is collaborative in nature, rather than adversarial, and that suppliers that actively participate in innovative supply-chain processes with these major customers actually wield considerable leverage and perform better financially.

As large continue to experience increased revenues and greater market share, many researchers and have asserted that this trend has caused a shift of power away from suppliers and manufacturers. The new study shows this isn’t necessarily the case.

“In this vision of the retail industry, large powerful retailers are eight-hundred-pound gorillas demanding concessions and squeezing every last drop of profit from suppliers,” said Matt Waller, professor of logistics and supply chain management in the Sam M. Walton College of Business. “The general assumption – and existing academic literature supports this – is that this concentration has allowed the powerful retailers to exploit their weaker suppliers, which in turn has caused the suppliers’ performance to suffer. But our study found that this isn’t necessarily the case. The dynamic between the two is a little more complex.” 

Waller and his colleagues wanted to determine the impact of key retail accounts on supplier performance. To do this, they analyzed financial statements from , Target and more than 3,400 firms that sell their products to the two major retailers. Specifically, the researchers examined how market shares – both suppliers’ and retailers’ – influence suppliers’ financial performance.

They found that the shift in power from supplier to retailer and the consequent dependence of the former on the latter have not necessarily led to adversarial relationships between the two. The findings provided evidence of collaboration and cooperation between the two groups, due in large part to the rapid adoption of innovative supply-chain processes, such as retailers sharing point-of-sale data with suppliers. This collaboration has enhanced financial performance throughout the supply chain.

“It’s true that suppliers that depend on these key retail accounts for a significant share of their total revenues relinquish some of their leverage in the marketplace,” Waller said. “But we found that as these powerful retailers gain , their suppliers’ performance tends to increase. So suppliers may actually benefit from this dependence, and it could reflect successful strategic coordination rather than power struggles.”

The researchers’ findings were published in the Journal of Retailing.

Explore further: Reducing Expenses, Increasing Profits

Related Stories

Reducing Expenses, Increasing Profits

September 11, 2006

A University of Arkansas researcher studied 123 manufacturing firms -- high-tech and non-high-tech -- and found that implementation of information-technology-based supply-chain management systems has an overall positive impact ...

Will organic fruit, vegetables get cheaper soon?

August 26, 2010

Many grocery stores now carry at least some types of organic fruit and vegetables, thanks to the growing demand for these products that are viewed as more environmentally friendly and safer to eat than other produce. From ...

What smart companies can learn from Apple's supply chain woes

March 29, 2011

With growing public concern over worker suicides and injuries at Apple suppliers over the last two years, many companies are taking the wrong approach to managing their supply chains, says a new research study conducted by ...

U.S. auto supply chain at a crossroads: study

August 18, 2011

A troubled but enduring automotive supply chain in the United States can become stronger if a more collaborative strategy can gain wider acceptance, a research team at Case Western Reserve University has determined.

Recommended for you

Amateur paleontologist finds rare fossil of fish in Arizona

September 3, 2015

Growing up, Stephanie Leco often would dig in her backyard and imagine finding fossils of a tyrannosaurus rex. She was fascinated with the idea of holding something in her hand that was millions of years old and would give ...

X-rays reveal fossil secrets

September 3, 2015

A sophisticated imaging technique has allowed scientists to virtually peer inside a 10-million-year-old sea urchin, uncovering a treasure trove of hidden fossils.

Early human diet explains our eating habits

August 31, 2015

Much attention is being given to what people ate in the distant past as a guide to what we should eat today. Advocates of the claimed palaeodiet recommend that we should avoid carbohydrates and load our plates with red meat ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.