Manufacturing firm reaction to supplier failure and recovery

Manufacturing firm reaction to a supply failure is important because buyer dissatisfaction may induce related development or switching costs. The purpose of this paper is to ask: what is the impact of a supply failure and recovery on manufacturing firm dissatisfaction with the supplier?

A case study approach is used based on interviews of key informants, examining four US manufacturers classified by industry type (aerospace and electronics) and firm size (large and small).

Manufacturing firm dissatisfaction increases relative to the accumulated impact of the supply failure, and is reduced when the manufacturer has slack to absorb the failure or shares blame for it. The supplier's failure recovery reduces dissatisfaction to the extent that it demonstrates the supplier's long‐term commitment to the relationship. The findings indicate that attributes of the failure, the failure recovery, and context must be taken into account when considering how a supplier's recovery may ameliorate the negative impact of a supply failure.

The results are constrained by the number of cases we collected and by the limitations of retrospective interviews.

The findings suggest that manufacturers can over‐react to a failure because of the perceptual nature of risk, or under‐react to a failure because of excess slack or switching costs.

This paper adds significant detail to our understanding of how supplier failure and recovery impact a manufacturer's dissatisfaction with a supplier, the antecedent to costs involved with supplier development or switching.