How Do Plural-Sourcing Firms Make-and-Buy? The Impact of Supplier Portfolio Design

How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design, Organization Science, 2016, 27:5, 1161-1182

Posted: 19 Jun 2019

See all articles by Mari Sako

Mari Sako

University of Oxford - Said Business School

George Chondrakis

ESADE Business School

Paul M. Vaaler

University of Minnesota, Twin Cities - Law School and Carlson School of Management

Date Written: September 5, 2016

Abstract

This paper uses the notion of contracting strategy to advance research on plural sourcing. We develop and test a theoretical framework to explain how plural-sourcing firms strike the make-and-buy balance depending on their contracting strategy. The focal firm’s choice of a contracting strategy is associated with a specific supplier portfolio design, with a bargaining-based strategy resulting in many, narrowly capable suppliers with short tenure, and a relationship-based contracting strategy resulting in fewer, broadly capable suppliers with long tenure. Focal firms with the latter strategy incur lower overall contracting costs than those with the former, and therefore outsource more. Focal firms seek to influence contracting costs associated with their supplier portfolio for “nearly the same inputs” and “nearly the same suppliers.” Empirical analysis corresponding to the two levels, namely patent prosecution and legal services at Fortune 500 firms, provide consistent support for our theory.

Keywords: make-and-buy, plural sourcing, supplier portfolio design, contracting strategy, legal services

Suggested Citation

Sako, Mari and Chondrakis, George and Vaaler, Paul M., How Do Plural-Sourcing Firms Make-and-Buy? The Impact of Supplier Portfolio Design (September 5, 2016). How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design, Organization Science, 2016, 27:5, 1161-1182 , Available at SSRN: https://ssrn.com/abstract=3402578

Mari Sako (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

George Chondrakis

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Paul M. Vaaler

University of Minnesota, Twin Cities - Law School and Carlson School of Management ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-4951 (Phone)
612-626-1316 (Fax)

HOME PAGE: http://carlsonschool.umn.edu/faculty/paul-vaaler

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