Fostering incremental and radical innovation through performance-based contracting in buyer-supplier relationships

Sumo, Raf Regien; Valk, Wendy van der; Weele, A.J. van; Bode, Christoph

doi:10.1108/ijopm-05-2015-0305

Cited by 68 publications

(72 citation statements)

References 91 publications

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“…Pay-for-performance contracts, in particular, emphasise incentive alignment (Kim et al, 2007;Datta and Roy, 2011), motivating suppliers to achieve the buyer's objectives e.g. cost reduction or innovation (Sumo et al, 2016).…”

Section: Introductionmentioning

confidence: 99%

Supply chain alignment as process: contracting, learning and pay-for-performance

Selviaridis

Spring

2018

IJOPM

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Purpose: This paper seeks to understand how buyers and suppliers in supply chains learn to align their performance objectives and incentives through contracting.Design/methodology/approach: Two longitudinal case studies of the process of supply chain alignment were conducted based on 26 semi-structured interviews and 25 key documents including drafts of contracts and service level agreements. Findings:The dynamic interplay of contracting and learning contributes to supply chain alignment. Exchange-, partner-and contract framing-specific learning that accumulates during the contracting process is used to (re)design pay-for-performance provisions. Such learning also results in improved relationships that enable alignment, complementing the effect of contractual incentives. Research limitations/implications:The study demonstrates that the interplay of contracting and learning is an important means of achieving supply chain alignment. Supply chain alignment is seen as a process, rather than as a state. Supply chain alignment does not happen automatically or instantaneously, nor is it unidirectional. Rather, it is a discontinuous process triggered by episodic events that requires interactive work and learning.Practical implications: Development of performance contracting capabilities entails learning how to refine performance incentives and their framing to trigger positive responses from supply chain counterparts.Originality/value: The paper addresses supply chain alignment as a process. Accordingly, the paper unearths some important features of supply chain alignment.

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Section: Introductionmentioning

confidence: 99%

Supply chain alignment as process: contracting, learning and pay-for-performance

Selviaridis

Spring

2018

IJOPM

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“…Performance may be measured in terms of asset or product availability or utilization or even customer satisfaction and monetary revenues (Nullmeier et al, ). Several studies on management control find empirical evidence for the favorable effects of output monitoring on customer‐supplier relations and supplier performance (Heide, Wathne, & Rokkan, ; Sumo, Van der Valk, Van Weele, & Bode, ; Tiwana & Keil, ). In practice, however, effectively implementing performance‐based contracting is challenging (Ng & Nudurupati, ; Ssengooba, McPake, & Palmer, ).…”

Section: Literature Review: Pbcs In Outsourced Servicesmentioning

confidence: 99%

Contracting outsourced services with collaborative key performance indicators

Akkermans

Oppen²,

Wynstra

et al. 2019

J of Ops Management

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While service outsourcing may benefit from the application of performance-based contracts (PBCs), the implementation of such contracts is usually challenging. Service performance is often not only dependent on supplier effort but also on the behavior of the buying firm. Existing research on performance-based contracting provides very limited understanding on how this challenge may be overcome. This article describes a design science research project that develops a novel approach to buyer-supplier contracting, using collaborative key performance indicators (KPIs). Collaborative KPIs evaluate and reward not only the supplier contribution to customer performance but also the customer's behavior to enable this. In this way, performance-based contracting can also be applied to settings where supplier and customer activities are interdependent, while traditional contracting theories suggest that output controls are not effective under such conditions. In the collaborative KPI contracting process, indicators measure both supplier and customer (buying firm) performance and promote collaboration by being defined through a collaborative process and by focusing on end-of-process indicators. The article discusses the original case setting of a telecommunication service provider experiencing critical problems in outsourcing IT services. The initial intervention implementing this contracting approach produced substantial improvements, both in performance and in the relationship between buyer and supplier. Subsequently, the approach was tested and evaluated in two other settings, resulting in a set of actionable propositions on the efficacy of collaborative KPI contracting. Our study demonstrates how defining, monitoring, and incentivizing the performance of specific processes at the buying firm can help alleviate the limitations of traditional performance-based contracting when the supplier's liability for service performance is difficult to verify. K E Y W O R D Scollaboration, design science research, key performance indicators (KPIs), outsourcing, performance measurement, performance-based contracts, service procurement

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“…Organizations looking for innovation from their suppliers may pursue different contract shapes; when incremental innovation is sought after, it is advantageous to draft contracts with performance-based rewards and moderate term specificity. When innovation needs to be radical, suppliers should only be rewarded for their performance (Sumo, van der Valk et al 2016). Contracts also define what is to be transacted and, thus, play a key role in distributing the profits of a supply chain among its members (Li, Ryan et al 2015).…”

Section: Negotiation and Agreementmentioning

confidence: 99%

The role of context, activities, and organization, in Value-Based Procurement

Larsson¹

2018

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This thesis explores the adoption of a Value-Based Procurement Strategy. A procurement strategy is value-based when it facilitates procurement to develop attractive value propositions for both suppliers and internal stakeholders. The procurement function, including its activities and organization, and the collaboration with suppliers, are shaped to achieve this goal. SAAB, a Swedish military fighter airplane manufacturer, has been driven to adopt such a strategy by its surrounding context and market position, which demand that SAAB find new ways to attract key suppliers. SAAB responded to this demand by offering suppliers alternative benefits in terms of, for example, knowledge, intelligence, standardization, co-marketing, and prioritization. SAAB offers the empirical opportunity taken by this thesis to explore Value-Based Procurement.A theoretical framework built on literature on procurement in terms of procurement context, procurement activities, and procurement organization informs this study. The framework also encompasses literature on value and value propositions. A value perspective describes well both how SAAB's procurement function has been shaped, and the work that the procurement Värdeerbjudanden är verktyg för att utveckla inköpsstrategi och för att exekvera på sådan strategi i inköps arbete. Denna avhandling fördjupar också förståelsen för värde genom att förespråka en parallell syn på samutvecklat värde för kund och leverantör. Slutligen bidrar den till inköpsliteraturen genom att visa att den köpande sidan också kan erbjuda värde. Denna avhandling bidrar till företagsledare genom att illustrera hur en Värdebaserad inköpsstrategi kan införas och möjliga anledningar till varför den borde införas. Den föreslår också "value actions" som möjliga satsningar på att förbättra Värdebaserad inköpsstrategi.-viii --ix -

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Fostering incremental and radical innovation through performance-based contracting in buyer-supplier relationships

Cited by 68 publications

References 91 publications

Supply chain alignment as process: contracting, learning and pay-for-performance

Supply chain alignment as process: contracting, learning and pay-for-performance

Contracting outsourced services with collaborative key performance indicators

The role of context, activities, and organization, in Value-Based Procurement

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