Ensuring Adaptation While Seeking Efficiency: Tiered Outsourcing and Skip-Level Supplier Ties in the Airbus A350 Program

Oliver Baumann, Markus Becker, Isabel Horrmann

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

When outsourcing design tasks, firms want their suppliers to be both efficient and adaptive. Whereas efficiency is necessary to reap economic gains from outsourcing, adaptation is required to deal with interdependencies as the design evolves. Achieving both objectives simultaneously, however, is difficult because procurement contracts require a trade-off between providing incentives for efficiency and facilitating adaptation. In the presence of formal contracts that provide strong incentives for efficiency, ensuring adaptation thus requires effective relational contracts between the buyer and the supplier. But because the focus of prior research has been on dyadic buyer–supplier relationships, it is unclear how the efficiency–adaptation trade-off can be mitigated in the multitier supplier systems that are common in many industries. Addressing this gap, we argue that in hierarchical supplier systems, relational contracts between contractual partners become more important, but at the same time harder to establish, than in single-tier supplier systems. An in-depth case study of the adaptive frictions that arose in the Airbus A350 program allows us to illustrate this challenge of tiered outsourcing. Moreover, we show how Airbus came to resolve the frictions by leveraging skip-level ties—direct informal contacts to lower-level suppliers with which no contractual relationship existed, thus replacing the archetypal notion of a supplier hierarchy by a more complex relationship structure. We discuss the boundary conditions of our findings and suggest propositions for the emergence of skip-level ties in tiered outsourcing.
Original languageEnglish
JournalOrganization Science
Volume31
Issue number5
Pages (from-to)1053-1312
ISSN1047-7039
DOIs
Publication statusPublished - Oct 2020

Keywords

  • Adaptation
  • Buyer-supplier relationships
  • Complex systems
  • Incentives
  • Multitier supply chains
  • Outsourcing
  • Product design
  • Relational contracts

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