Historical Supplier Performance and Strategic Relationship Dissolution: Unintentional but Serious Supplier Error as a Moderator

How and why is the association between historical supplier performance and strategic relationship dissolution moderated by an unintentional but serious supplier error? Adopting Assimilation-Contrast Theory, we propose that this moderation effect can be either negative or positive. As an empirical test, we collected and analyzed data from 256 sourcing professionals participating in a scenario-based role-playing experiment. After confirming experimental checks, we fitted a general linear mixed effects model to the data with appropriate controls. We find, ceteris paribus, that a critical-component supplier with stellar historical performance is less likely to be terminated by the manufacturer than one with marginally-acceptable historical performance. However, when a critical-component supplier with stellar historical performance errs, its likelihood of being terminated by the manufacturer increases by a greater extent than when a supplier with marginally-acceptable historical performance commits the same mistake. This positive supplier performance penalty effect contributes to the buyer-supplier relationship dissolution literature by identifying how and why the deterrence to relationship dissolution typically engendered by stellar historical supplier performance does not hold. Our results have implications for how manufacturers should evaluate critical-component suppliers and how critical-component suppliers should manage ongoing strategic relationships with manufacturers.