Supply Chain Incentive Alignment: The Gap between Perceived Importance and Actual Practice

Abstract

Incentive alignment is discussed as one of the key factors for successful implementation of supply chain management. However, there is a lack of empirical research regarding implementation as well as evaluation of the effects of alignment mechanisms in practice. The purpose of this study is therefore to explore and describe the current practice and to identify gaps of Supply chain incentive alignment. The study is an explorative and descriptive survey study based on forty-eight responses from members, supply chain officers, of the Swedish Supply chain panel. The theoretical lenses are based on literature discussing incentive alignment in supply chains, e.g. principal-agency theory and supply chain contracting, but also on literature discussing internal process based management and rewards for goal congruence. The study shows a clear gap between perceived importance and realized practice of both external (interorganizational) and internal (cross-functional) incentive alignment. Very few of the existing sophisticated coordinating mechanisms proposed in theory were used to any significant extent. In fact, the internal incentive structures seem to counter act, and not support, supply chain orientation. This finding relates not only to non-logistics departments but also to functions in “the logistics family”. The major challenge, both externally and internally, is to be able to define incentives that drives behaviour in the right direction. The study clearly shows gaps between practitioners’ intent and current practice, and it provides a broad range of more sophisticated and coordinating mechanisms than the ones mainly used today. (Less)