The American Accounting Association has awarded Assistant Professor Panos Patatoukas its Competitive Manuscript Award for his research paper debunking conventional wisdom about the consequences of customer concentration for supplier firms.
In his award-winning paper, "Customer-Base Concentration: Implications for Firm Performance and Capital Markets,” Patatoukas examines whether and how customer-base structure affects supplier firms' fundamentals. To investigate this, he compiled a comprehensive sample of supply-chain relationships and devised a measure that captures the extent to which a supplier’s customer base is concentrated.
The conventional view is that relationships with few major customers (high customer-base concentration) are an impediment to a supplier firm's performance. This is because major customers pressure their dependent suppliers to provide concessions such as lowering prices, extending trade credit, and carrying extra inventory. The popular press often highlights the “evils” of having a concentrated customer base by reference to the case of Wal-Mart and its history of squeezing its dependent suppliers.
Patatoukas’ research, however, provides novel evidence that efficiencies from coordination and collaboration along the supply chain dominate weaknesses in dealing with major customers and therefore, customer-base concentration has a net positive impact on supplier-firm performance and stock market valuation.
“Although suppliers with more concentrated customer bases report lower gross margins, they also spend less on selling, general, and administrative expenses per dollar of sales, hold less of their assets in inventory, as well as experience higher turnover rates of current and noncurrent assets and shorter cash conversion cycles,” says Patatoukas.
The paper lies at the intersection of accounting, finance, and operations management research, and it is reflective of Patatoukas’ broad research interests. Patatoukas joined the Haas Accounting Group in 2010 and received his PhD in accounting and finance from Yale University.