Benchmarking supplier performance: How scorecard comparisons and supply risk influence termination decisions

This study examines how supplier termination decisions are influenced by scorecard performance, peer supplier performance, and component supply risk in multisourcing supply chains. While supplier selection has been extensively studied, supplier termination remains underexplored, particularly in dynamic industries like electronics manufacturing. Drawing from agency theory, we examine how relative performance evaluation (RPE) mechanisms and supply risk shape termination decisions. Using proprietary data from a major electronics firm covering 78 suppliers across 15 components over 42 months, we provide novel evidence that firms employ comparative evaluation rather than absolute performance thresholds. Supplier scorecard improvements significantly increase survival probability, while strong peer performance decreases survival probability for other suppliers, demonstrating RPE effectiveness. However, component supply risk systematically moderates these relationships through distinct mechanisms: supplier scarcity weakens both own performance and peer performance effects on termination decisions. In contrast, component specialization selectively reduces peer performance effects but does not moderate own performance effects. These patterns reflect situations where supply constraints limit performance-based termination effectiveness. The study contributes by extending agency theory's RPE to inter-firm settings and demonstrating how different supply risk dimensions selectively moderate different performance evaluation types. These insights guide supply chain managers in understanding when performance-based termination criteria are most effective.