an experimental investigation of the interactions ... - Vlerick Public

supplier of wood, which is the most important component of parquet floors and an importantdeterminant of customer satisfaction, has stopped the production of wood for parquet floors. Inorder to make the experimental task not overly complex, it was told to the participants that theoverall performance of a supplier is based on two metrics: the total costs of a supplier and therevenue-generating possibilities of a supplier. The total costs of a supplier refer to all the costs that asupplier causes within the firm such as purchasing cost, costs of waste, storage costs andadministrative costs. 4 The revenue-generating possibilities of a supplier refer to the influence asupplier has on customer satisfaction and thus on the revenues of the firm to which the supplierdelivers his goods and services. Although suppliers were traditionally evaluated on the total coststhat they cause in the buying firm, companies are increasingly aware of the fact that suppliers alsocan generate revenues if the characteristics of the goods and services they deliver match withcustomer preferences (Plank and Ferrin 2002). Consequently, in order to select a supplier thatoptimizes firm performance, purchasing managers have to make a trade-off between the total coststhat a supplier causes and the revenues that he generates (Wouters et al. 2005). To focus subjects’attention on the trade-off between the total costs and the revenue-generating possibilities, the intrafirmcooperation is limited to cooperation between the purchasing department, which oftencalculates the total costs of a supplier, and the marketing department, which has a good idea aboutcustomer preferences and the impact of a new supplier on the firm’s revenues (Ivens et al. 2009). Itis important to mention that subjects in all the conditions receive the same information about thetotal costs. Specifically, for each supplier, they all receive one number that reflects the total costs ofthat particular supplier. Our manipulation of the information system varies the way in which therevenue-generating possibilities of a supplier are represented. This will be explained in Section 3.3 ofthis study.After reading the scenario, subjects had to make six supplier selections. Each supplierselection was presented on one screen. Subjects could take as much time as they want to make adecision but once a final decision was made, they could not change their decision anymore. To avoidorder effects, the sequence of the six supplier selections was randomized. Subjects receivedinformation about the total costs and the revenue-generating possibilities for each of the two newsuppliers as well as for the current supplier. To avoid that the results are driven by the movement ofthe total costs towards the current supplier, we differed the six supplier selections with respect tothe movement of the total costs towards the current supplier. 54 The total costs of a supplier are similar to the Total Cost of Ownership of a supplier (Degraeve and Roodhooft 2001).However, to avoid any connotations with this technique, we do not label the total costs of a supplier as the ‘Total Cost ofOwnership’.5 In two supplier selections, the total costs of both suppliers was higher compared to the total costs of the current supplier,in two supplier selections the total costs of both suppliers was lower compared to the total costs of the current supplier,13