Towards dynamic contract extension in supplier development
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ORIGINAL PAPER
Towards dynamic contract extension in supplier development Karl Worthmann1 • Michael Proch2 • Philipp Braun3 • Jo¨rg Schlu¨chtermann2 Ju¨rgen Pannek4
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Received: 4 January 2016 / Accepted: 13 July 2016 Ó The Author(s) 2016. This article is published with open access at Springerlink.com
Abstract We consider supplier development within a supply chain consisting of a single manufacturer and a single supplier. Because investments in supplier development are usually relationship-specific, safeguard mechanisms against the hazards of partner opportunism have to be installed. Here, formal contracts are considered as the primary measure to safeguard investments. However, formal contracts entail certain risks, e.g., a lack of flexibility, particular in an ambiguous environment. We propose a receding horizon control scheme to mitigate possible contractual drawbacks while significantly enhancing the supplier development process and, thus, to increase the overall
This article is part of a focus collection on ‘‘Dynamics in Logistics: Digital Technologies and Related Management Methods’’. & Ju¨rgen Pannek [email protected] Karl Worthmann [email protected] Michael Proch [email protected] Philipp Braun [email protected] Jo¨rg Schlu¨chtermann [email protected] 1
Institute for Mathematics, Technische Universita¨t Ilmenau, 98693 Ilmenau, Germany
2
Faculty of Law, Business Administration and Economics, University of Bayreuth, 95440 Bayreuth, Germany
3
Mathematical Institute, University of Bayreuth, 95440 Bayreuth, Germany
4
Dynamics in Logistics, BIBA, University of Bremen, 28359 Bremen, Germany
supply chain profit. Our findings are validated by a numerical case study. Keywords Supply chain management Supplier development Optimal control Receding horizon scheme Dynamic systems
1 Introduction Since manufacturing firms increasingly focus on their core business activities, an efficient supply chain plays a major role in generating competitive advantages. However, suppliers too often lack the capability to perform adequately. In response, manufacturers across a wide range of industries are implementing supplier development programmes to improve supply chain performance [48]. According to [22, p. 206], supplier development is defined as any effort by a buying firm to improve a supplier’s performance and/ or capabilities to meet the manufacturing firm’s short- and/ or long-term supply needs. In accordance with the relational view as proposed by [10], activities of supplier development, in which firms convert general-purpose resources such as money, people skills, or managerial knowledge into relationship-specific resources, represent a rent-generating process. However, relationship-specific resources are difficult or even impossible to redeploy outside the particular business relationship [54]. Thus, firms may see resources committed to supplier development as vulnerable to opportunistic expropriation [51]. Following this line of reasoning, supplier
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