Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
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
JF - Supply Chain Management
SN - 1359-8546
IS - 2
ER -