The selection of contracts in supply chains: An empirical analysis

• Author: Pietro De Giovanni,Stephan Sluis
• Date: 01 January 2016
• Published date: 01 January 2016
• DOI: http://doi.org/10.1016/j.jom.2015.10.002

The selection of contracts in supply chains: An empirical analysis

Stephan Sluis

a

, Pietro De Giovanni

b

,

*

a

Department of Information, Logistics and Innovation, VU Amsterdam University, Av.De Boelelaan 1105, 1081HV, Amsterdam, The Netherlands

b

Operations Management Department, ESSEC Business School, Avenue Bernard Hirsch, B.P. 105, 95021,Cergy Pontoise, Paris, France

article info

Article history:

Received 5 November 2014

Received in revised form

25 September 2015

Accepted 19 October 2015

Available online 24 November 2015

Accepted by Daniel R. Guide

Keywords:

Supply chain coordination

Contracts

Performance

Supply chain orientation

Supply chain integration

Multiple logistic regression

Multinomial logistic regression

abstract

This paper seeks to empirically identify the key drivers for firms in selecting a contract in a supply chain

by investigating their performance, supply chain orientation, and supply chain integration. A conceptual

model is drawn up based on the existing literature in supply chain coordination contracts, perf ormance,

supply chain orientation, and supply chain integration and tested on a large sample of European firms.

Multiple and multinomial logistic regression models allow for estimating the relationships between

these variables. Our results demonstrate that the selection of contracts and the probability of their

adoption depend on several combinations of firms' performance, supply chain orientation, and inte-

gration. Overall, the research provides an empirical contribution to the literature on coordination with

contracts, which turns out to be mainly game theory base d.

©2015 Elsevier B.V. All rights reserved.

1. Introduction

Supply chain coordination with contracts is generally used for

removing inefficiency along the supply chain (SC) and aligning

supply chain members' objectives (Cachon, 2001; Chen, 2011). In a

typical two-stage SC, both buyer and supplier agree on prices,

discounts, purchase quantities, lead times, product quality, and

return policies via a contract (Simchi-Levi et al., 2009). Theoretical

research on the adoption of contracts has mainly focused on

improving operational performance (Elahi et al., 2013; Chen, 2011;

Wong et al., 2009; Giannoccaro and Pontrandolfo, 2004) and

maximizing SC profits (Elahi et al., 2013; Chen, 2011; Huang et al.,

2011; Simchi-Levi et al., 2009; Wang and Zipkin, 2009; Wong

et al., 2009). Furthermore, several reasons drive the adoption of

contracts in the area of mutual cooperation because contracts

alleviate parties' conflict in transactional relationships (De

Giovanni, 2014) while diffused trust leads SC parties to align their

targets (De Giovanni et al. (2013),Woolthuis et al. (2005)). To follow

up on the current state of research, this study aims to identify the

relationship between a firm's degree of supply chain orientation

(SCO), supply chain integration (SCI) and performance, and the

firm's likelihood of adopting contracts to coordinate the SC. This

paper explores the most common contracts used in business

practice, in particular: revenue-sharing (RSC), wholesale price

(WPC), quantity discount (QDC), quantity flexibility (QFC), buy-

back (BBC), and sales rebate (SRC).

Supply chains consist of various inter-dependent entities that

collectively manage resources as inventory and information

(Arshinderet al., 2009). A lack of coordination and conflicting objec-

tives among these entities often results in demand and supply un-

certainties (Kannan and Tan, 2005). In the optimal solution toan SC

coordinationproblem, firms executea precise setof actions prioritized

above the individual objectives. Despite this, firms mainly focus on

their own profits since there is no incentive to align objectives and

share information. An incentive can be created by adjusting the terms

of trade via contracts (Cachon, 2001). A commonly used contract

within an SC is the WPC. Due to its simplicity, the WPC itself ca nnot

coordinate an SC since it does not solve the double marginalization

problem (Chen, 2011;Cachon and Lariviere, 2005). Simchi-Levi et al.

(2009) provided an overview of four coordination contracts (BBC,

RSC, QFC,and SRC) and showedthat firms tend to optimizetheir own

rewards when these contracts are put in place. Therefore, these con-

tracts are intended to replace the traditional business view according

to which firms seek to maximize only their own profits with a new

business orientation which pushesfirms to maximize the overall SC

profits (Simchi-Levi et al., 2009). SCO is another important antecedent

to properlyselecting contracts. It is defined as “the recognition by an

organization of the systemic, strategic implications of the tactical

*Corresponding author.

E-mail address: pietro.degiovanni@essec.edu (P. De Giovanni).

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2015.10.002

0272-6963/©2015 Elsevier B.V. All rights reserved.

Journal of Operations Management 41 (2016) 1e11