Economic clusters and the supply chain: a case study

Abstract

Purpose The purpose of the study is to illustrate the advantages for firms who build local supplier and customer relationships whenever possible. Design/methodology/approach A case study of a US petrochemical firm is used along with a discussion of Porter's economic cluster theory. Findings The firm outsourced two raw materials first to a firm about 200 miles away and then to a firm that built a plant across the street. By sourcing to a co‐located firm the company reduced its costs by $280,000 per year while simultaneously increasing quality by 6.5 per cent, reducing lead‐time by seven to ten days, and reducing raw material inventory from 800 tons to 30 tons. Research limitations/implications As with all case studies, care must be taken when generalizing the findings of this study. This article provides empirical evidence that supports Porter's economic cluster theory. Practical implications Managers are reminded that even in the age of the global business environment, there is still practical value in constructing local supply chains. Government officials who are in charge of economic development are shown the value of targeting clusters of economic activity. Originality/value This article provides empirical evidence that supports Porter's economic cluster theory and has practical implications for managers and government officials.

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