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

Performance‐based contracting in service supply chains: a service provider risk perspective 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Supply Chain Management An International Journal Emerald Publishing

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

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References (98)

Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1359-8546
DOI
10.1108/SCM-06-2013-0216
Publisher site
See Article on Publisher Site

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.

Journal

Supply Chain Management An International JournalEmerald Publishing

Published: Mar 4, 2014

Keywords: Supply chain management; Agency theory; Risk management; Service industries; Performance‐based contracting; Service supply chains; Transport and distribution

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