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Performance-based contracting in service supply chains: a service provider risk perspective

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Performance-based contracting in service supply chains : a service provider risk perspective. / Selviaridis, Kostas; Norrman, Andreas.

In: Supply Chain Management, Vol. 19, No. 2, 2014, p. 153-172.

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Selviaridis, Kostas ; Norrman, Andreas. / Performance-based contracting in service supply chains : a service provider risk perspective. In: Supply Chain Management. 2014 ; Vol. 19, No. 2. pp. 153-172.

Bibtex

@article{2bfd52f6e1594311b52fa655d5b90396,
title = "Performance-based contracting in service supply chains: a service provider risk perspective",
abstract = "Purpose - The performance of service supply chains in terms of service levels and cost efficiency depends not only on the effort of service providers but also on the inputs of sub-contractors and the customer. In this sense, performance-based contracting (PBC) entails increased financial risk for providers. Allocating and managing risk through contractual relationships along the service supply chain is a critical issue, and yet there is scant empirical evidence regarding what factors influence, and how, provider willingness to bear PBC-induced risk. This paper aims to address this gap.Design/methodology/approach - The paper draws on agency theory and two cases of logistics service supply chains, in the food retail and automotive industries respectively, to identify key influencing factors. Data were collected through semi-structured interviews with 30 managers of providers and sub-contractors and review of 35 documents, notably contracts and target letters.Findings - Four influencing factors were found: performance attributability within the service supply chain; relational governance in service supply chain relationships; provider risk and reward balancing; and provider ability to transfer risk to sub-contractors. The propositions developed address how these factors influence provider willingness to bear PBC-induced risk.Research limitations/implications The factors identified are external to the provider mindset and refer to the management of contractual relationships and service delivery interactions along the service supply chain. The paper contributes to agency theory by stressing the risk allocation implications of bi-directional principal-agent relations in service supply chains.Practical implications - The study suggests ways in which providers can increase their capacity to bear and manage financial risk related to PBC design.Originality/value - The paper identifies factors that influence provider willingness to bear financial risk induced by PBC in service supply chains.",
keywords = "Supply chain management, Agency theory, Risk management, Service industries, Performance-based contracting, Service supply chains, Transport and distribution, OPERATIONS STRATEGY, DEFENSE INDUSTRY, AGENCY THEORY, MANAGEMENT, INFORMATION, BEHAVIOR, MODEL, INCENTIVES, SIMULATION, FRAMEWORK",
author = "Kostas Selviaridis and Andreas Norrman",
year = "2014",
doi = "10.1108/SCM-06-2013-0216",
language = "English",
volume = "19",
pages = "153--172",
journal = "Supply Chain Management: An International Journal",
issn = "1359-8546",
publisher = "Emerald Group Publishing Ltd.",
number = "2",

}

RIS

TY - JOUR

T1 - Performance-based contracting in service supply chains

T2 - a service provider risk perspective

AU - Selviaridis, Kostas

AU - Norrman, Andreas

PY - 2014

Y1 - 2014

N2 - Purpose - The performance of service supply chains in terms of service levels and cost efficiency depends not only on the effort of service providers but also on the inputs of sub-contractors and the customer. In this sense, performance-based contracting (PBC) entails increased financial risk for providers. Allocating and managing risk through contractual relationships along the service supply chain is a critical issue, and yet there is scant empirical evidence regarding what factors influence, and how, provider willingness to bear PBC-induced risk. This paper aims to address this gap.Design/methodology/approach - The paper draws on agency theory and two cases of logistics service supply chains, in the food retail and automotive industries respectively, to identify key influencing factors. Data were collected through semi-structured interviews with 30 managers of providers and sub-contractors and review of 35 documents, notably contracts and target letters.Findings - Four influencing factors were found: performance attributability within the service supply chain; relational governance in service supply chain relationships; provider risk and reward balancing; and provider ability to transfer risk to sub-contractors. The propositions developed address how these factors influence provider willingness to bear PBC-induced risk.Research limitations/implications The factors identified are external to the provider mindset and refer to the management of contractual relationships and service delivery interactions along the service supply chain. The paper contributes to agency theory by stressing the risk allocation implications of bi-directional principal-agent relations in service supply chains.Practical implications - The study suggests ways in which providers can increase their capacity to bear and manage financial risk related to PBC design.Originality/value - The paper identifies factors that influence provider willingness to bear financial risk induced by PBC in service supply chains.

AB - Purpose - The performance of service supply chains in terms of service levels and cost efficiency depends not only on the effort of service providers but also on the inputs of sub-contractors and the customer. In this sense, performance-based contracting (PBC) entails increased financial risk for providers. Allocating and managing risk through contractual relationships along the service supply chain is a critical issue, and yet there is scant empirical evidence regarding what factors influence, and how, provider willingness to bear PBC-induced risk. This paper aims to address this gap.Design/methodology/approach - The paper draws on agency theory and two cases of logistics service supply chains, in the food retail and automotive industries respectively, to identify key influencing factors. Data were collected through semi-structured interviews with 30 managers of providers and sub-contractors and review of 35 documents, notably contracts and target letters.Findings - Four influencing factors were found: performance attributability within the service supply chain; relational governance in service supply chain relationships; provider risk and reward balancing; and provider ability to transfer risk to sub-contractors. The propositions developed address how these factors influence provider willingness to bear PBC-induced risk.Research limitations/implications The factors identified are external to the provider mindset and refer to the management of contractual relationships and service delivery interactions along the service supply chain. The paper contributes to agency theory by stressing the risk allocation implications of bi-directional principal-agent relations in service supply chains.Practical implications - The study suggests ways in which providers can increase their capacity to bear and manage financial risk related to PBC design.Originality/value - The paper identifies factors that influence provider willingness to bear financial risk induced by PBC in service supply chains.

KW - Supply chain management

KW - Agency theory

KW - Risk management

KW - Service industries

KW - Performance-based contracting

KW - Service supply chains

KW - Transport and distribution

KW - OPERATIONS STRATEGY

KW - DEFENSE INDUSTRY

KW - AGENCY THEORY

KW - MANAGEMENT

KW - INFORMATION

KW - BEHAVIOR

KW - MODEL

KW - INCENTIVES

KW - SIMULATION

KW - FRAMEWORK

U2 - 10.1108/SCM-06-2013-0216

DO - 10.1108/SCM-06-2013-0216

M3 - Journal article

VL - 19

SP - 153

EP - 172

JO - Supply Chain Management: An International Journal

JF - Supply Chain Management: An International Journal

SN - 1359-8546

IS - 2

ER -