Question

Explain any five management theories you may use to anchor a supply chain management research

Answer 1

SUPPLY CHAIN MANAGEMENT (SCM)

Supply chain management (SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.

The concept of Supply Chain Management (SCM) is based on two core ideas:

1. The first is that practically every product that reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain.
2. The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their “four walls.” Few businesses understood, much less managed, the entire chain of activities that ultimately delivered products to the final customer. The result was disjointed and often ineffective supply chains.

The organizations that make up the supply chain are “linked” together through physical flows and information flows.

Physical Flows

Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows.

Information Flows

Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and materials up and down the supply chain.

Five management theories i may use to anchor a supply chain management research are mentioned below:

Transaction Cost Economics

Transaction cost economics (TCE) argues that, during any economic exchange, the cost of the product or service should include all hidden costs. For example,when establishing a relationship between a buyer and supplier, hidden costs might include the time spent developing the relationship, the creation of contracts by a lawyer, or travel between various locations. The explicit focus for TCE is the reduction of transaction exposure by accounting for all organisational costs (that is, transaction and production costs). In its analytical structure, TCE often uses constructs such as asset specificity and uncertainty and exclusively translates the many trade-offs in a make or buy decision into cost, which mainly implies tangibility.

Consequently, TCE makes assumptions about how relationships are structured, and the development of ensuing forms of leverage. In this way, TCE overlooks two key considerations. The first involves contractual obligations and the way transaction costs are often dissipated throughout the supply chain. The second centres on the locus of control in supply chains and, in particular, how often minor players are able to exert considerable leverage through structural manipulation. For example, it has been widely noted that in some of the “...best value supply chains...”, issues such as time, quality, risk and flexibility can be easily manipulated by second-tier agents. Despite its limitations, the use of TCE to examine SCM issues has been found to be promising and valuable.

Agency Theory

In agency relationships, one party (the principal) delegates work to another party (the agent) to compensate for the lack of expertise or to focus on core competencies. When the agent is acting for the principal, it resembles behaviours such as performing for the benefit of the principal or acting as the principal’s representative or employee. As Eisenhardt (1989a) stated, while the profit maximisation approach and self-interest persists, “...the focus of agency theory [centres] on determining the most efficient contract governing the principal–agent relationship”.The notion of the contract is used here as a metaphor to describe the agency relationship and is designed based on the outcome (such as commissions) or behaviour (such as salaries) of the agent.

Two streams of agency theory (AT) can be found in the literature: principal–agent research and positivist agency theory. In agency relationships, the principal will typically seek to minimise agency costs, such as specifying, rewarding, monitoring and policing the agent’s behaviour, while the agent works towards maximising rewards and reducing principal control. Efficient management of agency problems, such as information acquisition (or communication), preference mismatch (or conflict of interest),effort (or moral hazard) and capability (or adverse selection)—mainly associated with the agent is also imperative in any principal–agent relationship. AT provides a useful framework to analyse relationships and behaviours in supply chains because these chains are replete with the principal–agent dyads.

Resource-Dependence Theory

The resource-dependence theory (RDT) focuses on a set of power relationships based on exchange of resources. It recognises that companies do not possess all the resources they might require in the process of value-creation, hence will often become dependent on each other. The key issue then becomes how organisations manage their power-dependence relationships to maintain their functional and operational requirements. In this regard, RDT assumes that organisations often form coalitions to increase their power and make other organisations dependent on themselves. Resource manipulation and control exertion are the strategies offered by RDT to manage uncertainty and dependence in business transactions.

In their argument on the issue of resource dependence in supply chains, Ketchen and Hult, highlighted the dissimilar nature of dependence in the traditional and best value supply chains. While traditional supply chains have a tendency to behave opportunistically in relation to their power-dependence advantage along the chain, best value supply chains exploit dependency as a means of fostering trust and commitment to fulfil supply chain requirements. This indicates a dramatic change in the resource-dependence prediction caused by the realities of contemporary business, such as the need for collaboration.

Network Theory

The network theory (NT) provides a broader view of the inter-organisational interactions in a network environment. It highlights the dynamics of network environments and recognises the influence of partner–partner relationships on an organisation’s operations. By emphasising the notion of strong and weak ties, the NT states that a network resource view assists managers to develop a more realistic assessment of individual node resources and their implications for business. Resource accession and coordination are considered key triggers for inter-organisational connectedness, and are advocated to be embraced in today’s turbulent business environment.

It is important to note that NT pays significant attention to the fit between organisations that are planning to form cooperative relations. This necessitates the alignment between the actors, activities and resources that constitute key network components. Moreover, the theory is useful for investigating trust and longevity in bilateral relationships. By taking a network approach, organisations can design their supply chains so they can benefit from things such as the advantages of strong ties to build reliability, and weak ties to create flexibility to manage their responsiveness. A further implication of the NT is its usefulness for supply chain innovation by demonstrating network-wide knowledge-sharing mechanisms and management.

Relational Exchange Theory

The relational exchange theory (RET) centres on the idea of embeddedness, which suggests that cooperative parties act based on certain norms, as opposed to contractual obligations.It emphasises soft control mechanisms to attenuate opportunism. That is, RET predicts that trust-based relationships are less prone to partners’ opportunism. In addition, trusting relationships assist in dedicating resources to developing and maintaining relationships, rather than managing transactional tensions or abnormal behaviours in the supply chain.

By extending the RBV of the firm, Dyer and Singh (1998) emphasised the importance of relational rents resulting from relation-specific assets, knowledge-sharing routines,complementary resources and capabilities and effective governance in cooperative arrangements. These are essential for building a sustainable competitive advantage for supply chain organisations. Overall, RET is significant to SCM because it provides a framework to manage relationship flows, which is important to facilitate resource exchange within and between supply chain organisations.

CONCLUSION

The article aimed to develop a holistic framework of SCM. Therefore, an extensive and critical review of the literature was used to shed light on some key theories and models used in the extant supply chain research, which provided better understanding of the discipline.Theories such as TCE, AT, RET, RDT and NT were reviewed. Moreover, supply chain models were explained in terms of strategic, operational, network and behavioural models,which unfolded some of the realities of SCM. An integrated view of the theories and models of SCM was constructed to facilitate understanding of the SCM discipline and ensuing implications for practitioners were outlined.