Abstract
The optimization investment policy decision of SCM-Supply Chain Management-implementation has been analysed under symmetric and asymmetric information conditions. For both conditions, SCM implementation options’ decision optimizing models have been developed. In these models, both clients and vendors try to pursue their own benefits. Based upon the principal-agent theory, the models show to what extent a principal (a client) needs to pay more to an agent (a vendor) in a context of asymmetric information. For the client, it is important to understand the extra costs to be able to adopt effective strategies to stimulate a vendor to perform an optimal implementation of a SCM system. The results of a simulation experiment regarding SCM implementation options illustrate and verify the theoretical findings and confirm the general notion that the less informed party is obliged to pay information rent to the better-informed party.
Highlights
There are large similarities between the way of handling SCM implementation options and financial options, as will be demonstrated in this paper
Based upon the principal-agent theory, the models show to what extent a principal needs to pay more to an agent in a context of asymmetric information
Based upon the principal-agent theory, the models show why a principal should stimulate an agent to pursue his benefits and to what extent a situation of asymmetric information is to his disadvantage
Summary
There are large similarities between the way of handling SCM implementation options and financial options, as will be demonstrated in this paper. Clients do not necessarily have a big inside into the impact of a SCM implementation since they might not be acquainted with the possibilities and limitations of a SCM system Often, they are not familiar with technological problems when facing a SCM implementation, while the vendors are often not acquainted with the processes and operations of the enterprise or its supply chain. According to the asymmetry information theory, the vendors’ private information on SCM implementations is regarded as external, and cannot be controlled directly by the client. One party takes advantage of the other This is referred to as moral risk, the third element of the information asymmetry theory. Based upon the principal-agent theory, the models show why a principal should stimulate an agent to pursue his benefits and to what extent a situation of asymmetric information is to his disadvantage
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