The Impact of Supply Chains on Firm-Level Productivity
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Authors: Juan Serpa and Harish S. Krishnan
Publication: Management Science, Vol. 64, No. 2, February 2018
Abstract:
Firms in a vertical relationship are likely to affect each other鈥檚 productivity. Exactly how does productivity spill over across this type of relationship (i.e., through which mechanisms)? Additionally, how does the relative importance of these mechanisms depend on the structure of the supply chain?
To answer these questions, we decompose the channels of upstream productivity spillovers鈥攆rom customers to suppliers鈥攂y developing a structural econometric model on a sample of approximately 22,500 supply chain dyads.
We find that the 鈥渆ndogenous channel鈥 (i.e., the effect of the customer鈥檚 own productivity on the supplier鈥檚 productivity) is by far the most important source of spillovers. This is especially true if (i) the supplier has a concentrated customer base, (ii) the supplier and the customer have similar operational characteristics, and (iii) the relationship has medium maturity.
In the converse scenarios, we find, it is more important to have a partner with a portfolio of favorable 鈥渃ontextual鈥 characteristics (high inventory turnover, financial liquidity, and asset turnover) than to have a productive partner.
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