forthcoming in

Journal of Management Information Systems (JMIS)

(Fall 2008, Vol. 25, No.2, pp.41-72)

How Does Information Technology Shape Supply Chain Structure?

Evidence on the Number of Suppliers

Jason Dedrick Center for Research on Information Technology and Organizations University of California, Irvine Irvine, CA 92097, USA Tel: (949) 824-2863 Email: jdedrick@uci.edu

Sean Xin Xu School of Business and Management Hong Kong University of Science and Technology, Hong Kong, China Tel: (852) 2358-7637 Email: seanxu@ust.hk

Kevin Xiaoguo Zhu* Rady School of Management University of California, San Diego La Jolla, CA 92093, USA Tel: (858) 822-7476 Email: kxzhu@ucsd.edu

* Contacting author. All authors are listed in alphabetical order.

Abstract

This research investigates the relationship between a manufacturer��s use of information technology (particularly electronic procurement) and the number of suppliers in its supply chain. Will a manufacturer use more or fewer suppliers due to the increasing use of IT? Based on data from a sample of 150 U.S. manufacturers, we find no direct relationship between e-procurement and number of suppliers at the aggregate level. However, when we distinguish the type of goods purchased, we find that the use of electronic procurement is associated with buying from more suppliers for custom goods but from fewer suppliers for standard (or commodity) goods. It is possible that for commodity goods an efficiently-functioning transparent market ensures that a few suppliers are sufficient, while procurement of custom goods follows the ��move to the middle�� hypothesis due to the need for protection from opportunistic vendor hold-up. Further, the positive relationship between number of suppliers and electronic procurement for custom goods is negatively moderated by deeper buyer-supplier system integration. This implies that such integration can help buyers obtain better ��fit�� for their customized requirements, an alternative to increasing fit by employing more suppliers as proposed in the extant literature.

Keywords: supply chain structure, number of suppliers, information technology, electronic procurement, systems integration, inter-firm coordination, transaction costs economics