New research from Associate Professor Neale O’Connor sheds light on how companies decide when to end relationships with suppliers.
“Deciding when to terminate a supplier is one of the most important, yet least studied, decisions in supply chain management,” he says. “Getting these decisions wrong can lead to supply disruptions, delayed product launches and competitive risks.”
The study found that businesses compare suppliers with each other, rather than relying only on minimum performance benchmarks, an approach known as relative performance evaluation.
“When peer suppliers perform strongly, weaker suppliers face a higher risk of termination, while suppliers that improve their performance are less likely to be dropped,” Associate Professor O’Connor says.
However, practical constraints also shape these decisions. When suppliers are scarce, strong performance does not reduce termination risk as much. Likewise, when components are highly specialised, companies are less likely to end a supplier relationship simply because others are performing better.
The findings suggest replacing underperforming suppliers works best when alternatives are available and components are standard. The next stage of the research will explore how trust, relationship history and interpersonal dynamics influence these decisions.
