An Exploratory Study of the Management of Supplier Relationships in Rapidly Growing Entrepreneurial Firms

ABSTRACT This study examined the nature of supplier relationships between 91 rapidly growing small pharmaceutical companies and the key suppliers of products, services, or capital. The study included a survey and in-depth follow-up interviews with a subset of these companies. The study found these firms narrowing the number of suppliers they use; choosing a supplier first based on its meeting strategic priorities for its operations; and placing significant but secondary importance on the communication and working relationship. Rapidly growing firms stayed with suppliers meeting their strategic criteria, even if the working relationship was poor, unless an alternate source that provided both was patiently available. Firms experiencing stagnate or negative growth was more likely to change suppliers. Suggestions for suppliers are offered. INTRODUCTION The increasing globalization of markets and technology has changed the way companies compete. Firms are under pressure to quickly and accurately identify opportunities to sustain success. Just as importantly as identifying opportunities, however, companies must be poised to take advantage of opportunities as well as manage the growth that results from the successful pursuit of those opportunities. Although the issue of how to manage growth is important to all firms, the issue is particularly important in entrepreneurial ventures. For many entrepreneurial firms, growth is the essence of the firm (Carland, Hoy, & Carland, 1988). Further, entrepreneurial ventures are critical to the economic fabric of American business and have significant job creation capacity (Kirchhoff & Phillips, 1987). Consequently, examining the growth process in new ventures is crucial. While sales growth is the ultimate goal of all companies, rapid sales growth can present a host of problems as well. For example, in a study of 30 companies, Hambrick and Crozier (1985) focus on critical issues for rapidly growing firms. The authors cite four key problems: 1) instant size, which creates problems of inadequate employee skills and organizational systems, 2) a sense of infallibility because of past success, 3) an increasing level of internal turmoil and frenzy that arises from the hectic pace that accompanies growth, and 4) extraordinary financial resource needs to fund growth. A company's inability to effectively deal with these issues does not bode well for the firm's continuing success. Other research also highlighting high-growth firms has addressed the relationship between growth and the strategy making process (cf. Shuman, Shaw, & Sussman, 1985; Shuman & Seegar, 1986), strategy content (cf. Dsouza, 1990; Cooper, Willard, & Woo, 1986) or the link between environmental variables and strategy process and/or content in high-growth firms (cf. Bourgeois & Eisenhardt, 1988; Dsouza, 1990). Although research has focused on the internal problems created by a firm's growth, the impact of growth on relationships external to the firm has not been as well investigated. For example, clearly relationships with key suppliers are critical to the organization's ability to meet demand but how should these supplier relationships be managed. Should the organization that has undergone a period of rapid growth institute relationships with new suppliers and buyers to take advantage of opportunities that growth can create, or do firms retain established relationships with which they are familiar to facilitate the growth process? Evidence suggests that firms are increasingly engaging in long-term collaborative strategies with suppliers as well as other firms to improve their competitive position (Harrigan, 1988). Neilsen (1988) defines cooperative strategies as voluntary or contractual relationships where mutual collaboration results in risks or gains. While these strategies can range from value-chain partnerships with suppliers and buyers to equity joint ventures, the use of collaboration in general is viewed as a continuing trend (Smith, Carroll, & Ashford, 1995; Kanter, 1994). …