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Relational Advantage: Small Firms
Q1. What problems does the article point out that small organizations absolutely must avoid?
Two critical problems of small organizations are their limited power and their constrained resources (Jones et al., 2014). Smaller firms have less ability to engage in trust-based strategies because they cannot incentivize supplier collaboration due to limited capacity, which can hamper access to resources, the ability to function on economies of scale, and may struggle to engage in constant improvement. Thus, first and foremost small firms must take proactive measures to ensure they can fulfill promises in a timely fashion to foster such trust, and take strategic risks that will pay off for them as well as make demonstrations that they are trustworthy (Jones et al., 2014). Ideally there must be positive self-fulfilling prophesies for small firms Jones et al., 2014, p.5454).
Unfortunately, firms often burn themselves out with trust-building exercises that exhaust resources but do not offer adequate gains. Because they cannot operate on economies of scale and spread risk and have smaller portfolios of customers and cash flow is dependent upon major consumers, they are more vulnerable to supply chain disruptions and being taken advantage of by larger firms. Liquidity, and a lack of human resources can also make it much easier for larger firms to take advantage of them (Jones et al., 2014). Diversifying portfolios may...…with this.
Smaller organizations have less ability to diversify purchasing strategies, unlike large firms which may be able to hedge risk by using a variety of organizations. However, by establishing reliability, they can make themselves more attractive to larger firms. Some smaller firms fear entering purchasing strategies which can lock them into potentially exploitative relationships with larger firms, while others are more willing to see such relationships as unique value co-creation, and are willing to see relationships as assurance scenarios (Jones et al., 2014). Additionally, as more and more firms have encountered difficulties with international multi-channel global sourcing, both in terms of quality and access, the attractions of fostering trusted relationships with smaller, local organizations that are…
References
The 7 core purchasing strategies. (n.d.) Purchasing Procurement. https://www.purchasing-procurement-center.com/purchasing-strategies.html
Jones, S.L., Fawcett, S.E., Walin, C., Fawcett, A.M., & Brewer, B.L. (2014). Can small firms gain relational advantage? Exploring strategic choice and trustworthiness signals in supply chain relationships. Journal of Production Research, 52 (18) 5451–5466, http://dx.doi.org/10.1080/00207543.2014.915068
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