Supply Chain Coordination

Supply Chain Coordination - Supply Chain Coordination and...

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Supply Chain Coordination and Cooperation Mechanisms: An Attribute-Based Approach AUTHORS Lei Xu is a Ph.D. candidate in the department of statistics at the University of Washington in Seattle, Washington. Benita M. Beamon is an assistant professor of industrial engineering at the University of Washington in Seattle, Washington. Coordination within a supply chain is a strategic response to the problems that arise from inter- organizational dependencies within the chain. A coordination mechanism is a set of methods used to manage interdependence between organizations. Given the increasing importance of high-performance supply, and the advantages to be gained through supply chain coordination, the challenge to an organization is how to select the appropriate coordination mechanism to manage organizational interdependencies. This paper develops and illustrates an attribute-based, systematic process for selecting coordination mechanisms in a supply chain. INTRODUCTION A supply chain consists of many organizations acting together, with each organization dependent on the per- formance of other organizations in the chain. Coordina- tion within a supply chain is a strategic response to the challenges that arise from these dependencies. A coordi- nation mechanism is a set of methods used to manage interdependence between organizations. By definition, there are a number of different people, entities, and processes that interact in order to execute supply chain objectives. Coordination mechanisms, then, provide tools for effectively managing these interactions. The importance of coordination cannot be over- emphasized. Indeed, supply chain management (SCM) is commonly defined based on coordination: ‘‘SCM is the planning and coordination of activities, from procure- ment to production, through . . . distribution’’ (Aruna- chalam, Sadeh, Eriksson, Finne and Janson 2003). As time-based competition increases, in part due to e-commerce, the Internet, and improved information systems, there are greater pressures for organizations to improve response times. Arunachalam et al. (2003) also observes the importance of corporations forming alli- ances in order to best exploit market conditions and improve competitiveness. Given the increasing impor- tance of high-performance (rapid response, high quality) supply, and the advantages to be gained through supply chain coordination, the challenge to an organization is how to select the appropriate coordination mechanism. Coordination mechanisms may be differentiated on the bases of four attributes: resource sharing structure, deci- sion style, level of control, and risk/reward sharing. Given that the selection of a coordination mechanism is often based on minimizing relative costs, transaction cost the- ory (TCT) can be used to classify the three types of costs associated with coordination: coordination cost, opera- tional risk cost, and opportunistic risk cost. This facilitates relating each coordination mechanism attribute to a type of cost. Finally, organizations do not operate in a vacuum.
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