Performance implications of the fit between suppliers' flexibility and their customers' expected flexibility: A dyadic examination⋆

Abstract Although an increase in flexibility for firms usually entails further investments and higher operating overhead for their suppliers (Sheikhzadeh et al., 1998Koste and Malhotra, 1999), most studies have focused exclusively on the benefits derived from additional flexibility enjoyed by the buyer firms neglecting the impact on the financial performance of their suppliers (e.g., Malhotra and Mackelprang, 2012; Gligor, 2014; Mandal, 2015). To explore the complex supplier‐customer interplay, we introduce the concept of buyer‐supplier flexibility fit (i.e., the match between the level of flexibility the customer expects from its supplier and the supplier's level of flexibility) and explore its impact on the supplier's financial performance (i.e., ROA). We collected dyadic archival and survey data from 638 firms (319 supplier‐customer dyads) to test these relationships. Our results indicate that buyer‐supplier flexibility fit has a direct and positive impact on the supplier's ROA. Further, the strength of the relationship increases when firms operate in munificent and/or dynamic environments but does not change significantly in complex environments. The relationship also becomes stronger as the exchanged business volume increases between the customer and its supplier, and as the relationship progresses in age. In addition, our findings indicate that firms with perfect buyer‐supplier flexibility fit perform best, followed by firms with negative misfit (i.e., the supplier's level of flexibility is lower than its customer's expected level of flexibility), while firms with positive misfit (i.e., the supplier's level of flexibility is higher than its customer's expected level of flexibility) are the laggards. Interestingly, positive misfit has a stronger negative impact on suppliers' ROA compared to misfit in general and negative misfit. Key corresponding managerial implications are derived.