Supplier Selection - Supplier Selection in New Ventures

Abstract

Startups are dependent on external resources to succeed in new product development, and early supplier involvement is often viewed as a critical part in the venture s strategy, and it is linked to increased innovation and product development success. Today s literature on supplier selection only emphasize large scale-manufacturers, even though supplier selection for startups are more crucial. Due to this, the authors will investigate in the master thesis how the supplier selection in startups is conducted and how the supplier selection criteria are defined. The purpose of the study is to investigate how startups select suppliers in new product development. To answer the purpose, the authors have formulated two research questions: (1) How is the selection process conducted in the development of their first product; (2) How do startups define the selection criteria in the development of their first product? Agency Theory can explain the problem of aligning supplier-buyer s interests, and refers to the issue that often suppliers behave differently than expected after signing a contract. Though, Agency Theory has received little attention in publications on supplier selection. Therefore, the authors will use Agency Theory as a framework to discuss the supplier selection process in startups, together with how the underlying motivations for supplier involvement are linked to the supplier selection criteria. The design of the study can be defined as an embedded case study with multiple units of analysis. The authors have interviewed two founders (e.g. CEO and CTO) in five startups (ten interviews conducted), which produce physical products in technology-based industries in Trondheim. Findings indicate that startups have an immature selection process early after inception, which seem to be enhanced during their existence. Agency Theory can efficiently explain why startups emphasize to early establish common goals, clarify expectations and plan specific deliveries to reduce the risk of unexpected supplier behaviour after signed contract. The findings also suggest that startups tend to use relationship-based suppler selection with focus on qualitative criteria like trust, collaborative skills, communication and culture because these are crucial qualities in product development. Though, a startup friendly production flexibility and prices are also crucial criteria which might only be fulfilled when the supplier is geographically close, and is harder to bargain with arm s length suppliers in e.g. China. Though, the authors are sure that the findings have put light how broad and complex the field of supplier selection is. The authors suggest in further studies to investigate supplier selection in the perspective of e.g. network strategy, negotiations and international strategic supplier management three perspectives the authors mean is increasingly important in the years to come for both large and small businesses.