UNIT 2 – Theoretical Concepts relevant for SCMAC

Question 1

What is Governance structure?

Answer 1

it is a set of explicit and implicit rules and contracts in an organization or partnership that define:

• The distributions of responsibilities, rights and rewards.
• Procedures for reconciling the conflicting interests of stakeholders.
• Procedures for proper vision, control and info flows.

Question 2

Internal and External governance mechanisms:

Answer 2

• Internal: Hierarchy, Plans, Processes

- External: Prices, Standards, and Laws and regulations (e.g. Incoterms)

Question 3

Theories relevant for SCMAC

Answer 3

• Several theoretical concepts provide useful insights for explaining motives and restrictions of inter-firm collaboration:
  1. Neoclassical theory and the Coase theorem
  2. Transaction cost economics
  3. Resource-based theory
  4. Agency theory

Question 4

What is the Neoclassical theory?

Answer 4

• Actors are driven by their pursuit of maximizing individual benefit.
• The price mechanism guarantees efficient resource allocation (allocate to that party that can generate the highest individual benefit when employing the resource).
• This theory focuses on why firms deal with each other, but do not answer the question what is happening inside the other firms. (no need for inter-firm cooperation)

Question 5

What is the Coase theorem?

Answer 5

• Price mechanism in firms does not work.
• Choice between markets and hierarchy is determined mainly by differences in transaction costs (e.g. ESB spends or invest resources for monitoring and coordinating external professors)

Question 6

What is the Transaction cost economics (TCE)?

Answer 6

• Transaction costs occur whenever products are transferred between organizational units: by negotiating, informing, enforcing.
• TCE aims to keep transaction cost as minimum as possible. Inhouse (vertical integration) or outside (autonomous market contractors)?
• TCE assumes that market governance is more efficient. SC can help minimize transaction cost through “relational governance”.

Question 7

What is the Resource-based theory (RBT)?

Answer 7

• Access to a valuable, rare, non-imitable resources that defines its competitive position.
• Partners contribution of its own unique resources (relational resource) creates competitive advantage. If partner loses that resource, then we too.
• SC collaboration is no only “output-oriented”, but also “learning oriented” that opens the opportunity to access another firm’s core competencies.

Question 8

What is the Agency theory

and its characteristics?

Answer 8

• it investigates principal-agent relationships. E.g. Employers (principal) and employees (agent).
• Agency relationship’s characteristics:
  1. Goal conflict: principal and agent do not aim at the same outcome
  2. They act in their own self-interest
  3. Info asymmetry: both do not get the same info
• Countermeasures of principal cause costs (“agency costs”)
• SC are typical agency relationships.