Executive Overview American manufacturing has undergone dramatic changes during the last two decades. Manufacturing firms were re-engineered, downsized, and restructured. Employees were dismissed, divisions were scrapped, and subsidiaries were spun off. As a consequence, outsourcing to external suppliers increased significantly, which in turn resulted in the increased saliency of strategic sourcing and its economic implications. Strategic sourcing integrates the buying firm's strategic decisions with those of its key suppliers, thus promoting trust and decreasing transaction costs. However, a dark side of strategic sourcing has emerged. Some firms established long-term contracts with their suppliers, set up mutually dependent relationships, and then began to strangle suppliers with relentlessly short-term, cost-driven decisions. As a result, the buying firms and their suppliers have now become competitors in the same market. Simply put, there is serious long-term risk associated with firms becoming strategically integrated with suppliers and then mistreating them for short-term gains. This paper demonstrates that misapplying the tenets of strategic sourcing can result in the disintegration of the existing supply chain and weaken the buying firm's long-term competitiveness.
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