The role of supplier switching costs and supply chain responsiveness

Abstract

The present study explores the impact of supplier switching costs on supply chain responsiveness in Sri Lankan Micro, Small and Medium scale (MSME) manufacturing firms considering the three categories of switching costs: procedural switching costs, financial switching costs and relational switching costs. Survey data were collected from 188 manufacturing firms and Structural Equation Modeling (SEM) was used to analyse the relationship between variables. Empirical evidence verifies that procedural switching cost is more positively related to supply chain responsiveness than the other two types of switching costs. The relational switching cost is more negatively related to supply chain responsiveness. The most important predictor that has an impact on supply chain responsiveness is relational switching cost. The result also reveals no significant relationship between financial switching costs and supply chain responsiveness. Further, the results verify that the direct relationship between supplier switching costs and supply chain responsiveness is not significant. Thus, this relationship might be influenced by different intervening variables. The findings also expose that supplier switching costs do not play a significant role in the price and product competition in the context of the manufacturing sector in Sri Lanka. Since most firms already have a thoroughly evaluated supplier base with many suppliers for the same raw materials, switching suppliers is not a major dilemma as they can be easily replaced.