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

Abstract

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.

The influences of contract structure, contracting process, and service complexity on supplier performance

“…This yields new evidence that the complexity of services increases the importance of the buyer's follow-up management practices to attain the desired service performance. This is in line with the recent study by Selviaridis and Spring (2018), which illustrated the processual approach of contracting as parties learn about inefficiencies related to performance indicators and adjust them. This, in turn, improves their mutual understanding and alignment of performance objectives and incentives.…”

Inter-organizational governance: a review, conceptualisation and extension

“…opportunism or poor exchange or relationship performance) may trigger adaptations in contractual and/or relational governance mechanisms (e.g. Selviaridis and Spring 2018). This figure forms the basis for the synthesis efforts presented in subsequent sections.…”

“…More recent studies on inter-organizational governance have moved towards exploring contractual governance in further detail. For example, the literature shifted its focus towards exploring issues pertaining to contract design (Bercovitz and Tyler 2014;Dean, Griffith, and Calantone 2016;Ozmel et al 2017), the content of the contract (Duplat and Lumineau 2016;Schilke and Lumineau 2018) and the link between contracting and a range of performance outcomes such as supply chain alignment (Selviaridis and Spring 2018), new product performance (Dean, Griffith, and Calantone 2016), exchange performance (Poppo and Zhou 2014) and dispute resolution (Lumineau and Malhotra 2011).…”

“…Most prior research focuses on one organization's bargaining power on the contract structure (Argyres and Bercovitz 2015). Future studies should also uncover how the interaction of power and contracting may contribute to achieve supply chain alignment (Selviaridis and Spring 2018). Legal/institutional framework Zhou and Poppo (2010) Institutional set up (e.g.…”

Effective contracting for high operational performance in projects

“…There is also the view that partners negotiate and align performance expectations within the process of contracting (Selviaridis and Spring, 2018) and the contract then represents the negotiated mutual expectations. According to Cannon et al (2000), the relational part of the agreement reflects the expectations both partners have of each other, which develop as they work together to define mutual goals.…”