Supply Strategy: A Quasi-Experiment on the Number And Location of Suppliers

The supply strategy defines how many suppliers an item should have and where it should be located. If working with a single supplier may bring relational benefits, working with multiple sources may reduce opportunism risks. If a local supplier reaps benefits on account of its proximity, a global supplier may result in lower costs.

Methodology:

The quasi-experimental method was used to follow-up a purchasing policy change at an auto parts company, which took on a second supply source for low complexity items. The research collected data on costs, quality and stock coverage for 1,480 items between 2007 and 2012, analysing new supplier's entrance and location.

Results:

Introducing a second supplier reduced the price, especially when a new international supplier was introduced. Decreases in quality or increases in stock coverage were not observed.

Keywords:
Supply strategy; Single supplier; Multiple suppliers; Global supply; Quasi-experiment

Group	Description	Items
1	Local supplier which received from an international supplier.	71
2	Local supplier which received from a local supplier.	33
3	International supplier which did not receive from a 2nd supplier.	69
4	International supplier which received from an international supplier.	47
5	International supplier which received from a local supplier.	23
6	Local supplier which did not receive from a 2nd supplier.	399

	1	2	3	4	5	6
Average	-9.5%	-4.2%	-4.1%	-6.4%	-0.6%	-3.4%
Standard deviation	0.15	0.12	0.23	0.29	0.04	0.10
Sample variance	0.02	0.01	0.05	0.08	0.01	0.01
Kurtosis	1.0	5.4	2.7	-0.6	2.8	7.9
Asymmetry	-1.3	-2.4	0.9	-0.6	-1.8	-2.0
Count	71	33	69	47	23	399
Level of reliability (95.0%)	0.03	0.04	0.05	0.08	0.02	0.01

Variation source	SQ	gl	MQ	F	P-value	Critical F
Between groups	0.28	5	0.06	2.66	0.021	2.22
Within the groups	13.30	636	0.02
Total	13.57	641

	Variable 1	Variable 2
Average	-0.04	-0.04
Variance	0.012	0.053
Observations	503	139
Consolidated variance	0.021
T stat	0.027
Bicaudal P(T<=t)	0.978
Bicaudal critical t	1.963

	Variable 1	Variable 2
Average	-0.06	-0.04
Variance	0.034	0.016
Observations	174	468
Consolidated variance	0.021
T stat	-2.33
Bicaudal P(T<=t)	0.02
Bicaudal critical t	1.96

	Variable 1	Variable 2
Average	-0.04	-0.04
Variance	0.056	0.053
Observations	70	69
Consolidated variance	0.054
T stat	-0.09
Bicaudal P(T<=t)	0.92
Bicaudal critical t	1.98

	Variable 1	Variable 2
Average	-0.08	-0.03
Variance	0.020	0.010
Observations	104	399
Consolidated variance	0.012
T stat	-3.69
Bicaudal P(T<=t)	0.00
Bicaudal critical t	1.96

	Variable 1	Variable 2
Average	-0.09	-0.03
Variance	0.022	0.010
Observations	71	399
Consolidated variance	0.012
T stat	-4.40
Bicaudal P(T<=t)	0.00
Bicaudal critical t	1.96

	Variable 1	Variable 2
Average	-0.04	-0.03
Variance	0.014	0.010
Observations	33	399
Consolidated variance	0.01
T stat	-0.46
Bicaudal P(T<=t)	0.65
Bicaudal critical t	1.96

Group	Description	Items
1	Local Supplier which received from an international supplier.	46
2	Local Supplier which received from a local supplier.	21
3	International supplier which did not receive from a 2nd supplier.	73
4	International supplier which received from an International supplier.	44
5	International supplier which received from a local supplier.	22
6	Local supplier which did not receive from a 2nd supplier.	359

	1	2	3	4	5	6
Average	-482	1082	-1180	-12452	666	-512
Standard deviation	2633	3250	5522	64797	2556	4624
Sample variance	6.9E6	10.5E6	30.5E6	4198.7E6	6.5E6	21.4E6
Kurtosis	44	11	51	41	11	70
Asymmetry	-7	3	-7	-6	3	-6
Count	47	22	74	45	23	360
Level of reliability (95%)	773	1441	1279	19467	1105	479

	Group 1		Group 2		Group 3		Group 4		Group 5		Group 6
The Same (0)	31	67%	9	43%	61	84%	29	66%	11	50%	289	81%
Deteriorated (-1)	11	24%	8	38%	12	16%	11	25%	5	23%	58	16%
Improved (+1)	4	9%	4	19%	0	0%	4	9%	6	27%	12	3%

	Groups 1 + 2		Group 6
The Same (0)	40	60%	289	81%
Deteriorated (-1)	19	28%	58	16%
Improved (+1)	8	12%	12	3%

	Group 3		Groups 4 + 5
The Same (0)	61	84%	40	61%
Deteriorated (-1)	12	16%	16	24%
Improved (+1)	0	0%	10	15%

Group	Description	Items
1	Local supplier received from an international supplier.	36
2	Local supplier received from a local supplier.	20
3	International supplier which did not receive from a 2nd supplier.	63
4	International supplier which received from an international supplier.	36
5	International supplier which received from a local supplier.	20
6	International supplier which did not receive from a 2nd supplier.	317

	1	2	3	4	5	6
Average	-18.1%	-4.1%	-21.6%	9.1%	-6.4%	-6.8%
Standard deviation	0.691	0.402	0.669	1.050	0.415	0.703
Sample variance	0.477	0.162	0.448	1.102	0.172	0.494
Kurtosis	5.7	0.1	0.9	1.2	1.8	2.9
Asymmetry	1.9	0.8	1.2	1.4	0.6	1.4
Count	36	20	63	36	20	317
Level of reliability (95.0%)	0.23	0.19	0.17	0.36	0.19	0.08

Variation source	SQ	gl	MQ	F	P-value	Critical-F
Among groups	2.65	5	0.53	1.05	0.39	2.23
Within the groups	245.56	486	0.51
Total	248,21	491

	Variable 1	Variable 2
Average	-0.08	-0.09
Variance	0.47	0.47
Observations	373	400
Consolidated variance	0.473
T stat	0.276
bicaudal P(T<=t)	0.78
bicaudal Critical t	1.96

	Variable 1	Variable 2
Average	-0.05	-0.09
Variance	0.567	0.488
Observations	112	380
Consolidated variance	0.506
T stat	0.59
Bicaudal P(T<=t)	0.56
Bicaudal critical t	1.96

	Variable 1	Variable 2
Average	0,04	-0,22
Variance	0,766	0,448
Observations	56	63
Consolidated variance	0.598
T stat	1.77
Bicaudal P(T<=t)	0.08
Bicaudal critical t	1.98

	Variable 1	Variable 2
Average	-0.13	-0.07
Variance	0.364	0.494
Observations	56	317
Consolidated variance	0.475
T stat	-0.62
Bicaudal P(T<=t)	0.53
Bicaudal critical t	1.96

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[1] † Insper. E-mail: andrelcmd@insper.edu.br

Group 1	Items from local suppliers with introduction of a new international supplier.
Group 2	Items from local suppliers with introduction of a new local supplier.
Group 3	Items from international suppliers which remained as only suppliers.
Group 4	Items from international suppliers with introduction of new international supplier.
Group 5	Items from international suppliers with introduction of a new local supplier.
Group 6^* * Control Groups	Items from local suppliers which remained as only suppliers.