Supply chain management: an integrative review from the agency theory perspective.
| Autor | Partyka, Raul Beal |
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Introduction
Throughout the development of scientific literature, agency theory has become one of the most influential theories in the social sciences and has been applied to various forms of relationship (Ablander, Roloff, & Nayi, 2016). The theory proved to be adequate to illustrate supply chain relationships and points out implications for companies, it is also capable of providing information to companies on how to implement and design supply chain relationships (Wiese & Toporowski, 2013). Therefore, theorists and practitioners assume that suppliers always tend to circumvent buyers' requirements regarding environmental and social standards, especially if they impose additional costs on the supplier (Ablanderet al., 2016).
Agency theory is a useful tool for managers to diagnose and segregate their relationship portfolios, understanding and mitigating behavioral uncertainty (Fayezi, O'Loughlin, & Zutshi, 2012). Both the principals) and the agent(s) tend to maximize their individual benefits. The development of this principal-agent relationship was derived from economic scholars through limited rationality, personal interest and the agent's risk aversion (Fitri, Elmanizar, Nugraha, Yakub, & Cahyono, 2019). Relationships involving one company that delegates authority to another are common in the supply chain, for example, the principal--agent relationship exists in the case of supplier-managed inventory or long-term purchase contracts with automatic stock replenishment (Kros & Nadler, 2010). Control is a fundamental principle of transport management in logistics (Miller, Saldanha, Hunt, & Mello, 2013), in addition to the need for information, control and incentive mechanisms regarding moral hazard issues in contractual relationships of low- and high-performing responsive employees. Appropriate control mechanisms can prevent hidden actions and information (Kudla & Klaas-Wissing, 2012).
Greater demand for sustainable behavior is also linked to adverse selection agency problems and moral hazards in dyadic relationships. The adverse selection problem identified in relation to people with poor responsive performance indicates a demand for evaluation and selection criteria for suitable partners (Kudla & Klaas-Wissing, 2012). On the other hand, when outsourcing is involved, it brings information asymmetries in the development of initial contracts, which can lead to worse performance than initially expected. In this case, by applying agency theory, performance can be improved in the long run through the effective design of well-constructed contractual relationships (Sayed, Hendry, & Zorzini Bell, 2020). With respect to traditional forms of financial performance (e.g. revenue, profit), these goals tend to lead to horizontal agency problems, for example in networks distributed throughout a franchise. In chains that use corporate-owned stores, vertical branch issues can become the main factor of non-compliance (Massimino & Lawrence, 2019).
The theoretical lenses that agency theory provides can support managerial decision-making and strategy formulation, specifically with respect to relationships with suppliers and customers (Fayezi et al., 2012). Supply improvement initiatives lead to more collaborative relationships between buyer and supplier, thus lowering barriers to behavior-based approaches to managing supplier sustainability practices as prescribed by agency theory (Shafiq, Johnson, Klassen, & Awaysheh, 2017). Monitoring can help buyers deal with an agent's opportunism as an integral part of relationship management (Heide, Wathne, & Rokkan, 2007). However, in a contract manufacturing environment, neither severe external penalties nor frequent audits are able to fully align the quality interests of the parties (Handley & Gray, 2013).
Aiming to raise new reflections, discussions and research, this review intends to answer the following research question: What are the absences and incipiencies of international scientific production in supply chain management from the agency theory perspective?
Among the types of systematic literature reviews, this one fits as an integrative review, i.e. a literature review method that aims to carry out various analyzes to expose the knowledge already raised by previous research (Botelho et al., 2011). Therefore, the number of published articles, number of citations, main authors and journals, for example, are analyzed. Based on the type of review used, motivation and contribution go together, that is, integrating the different opinions, concepts, results, ideas of the selected articles. This study also allows the evaluation of studies from the most diverse methodologies, either quantitative or qualitative. The bases of articles, whenever possible, were exported directly from the bases and inserted in the treatment software, avoiding possible errors due to incomplete information in the collection. Finally, the biggest challenge lies in presenting the discussion of results and suggesting future research in which the analysis and synthesis of the most diverse sources, themes and methods require compilation through extensive work.
Only two other articles sought to review the supply chain management literature that uses agency theory. While Fayezi et al. (2012) restrict their search to relationships within the supply chain, which analyzed 19 articles, Liu, Feng, Zhu, & Sarkis (2018) focused on identifying the theories used in studies on green chain management and circular economy. As result, 12 theories emerged from the exploratory investigative study. Therefore, this research can be considered broader and unprecedented, since it carries out research without thematic limitation and without focusing only on theories or methods. It sheds light on international scientific production on supply chain management from the perspective of agency theory. The purpose is to unveil the publications and their characteristics and, above all, point out potential future research. 43 articles were identified, which primarily contribute to the understanding of the field. Agency theory can help managers to consider social, economic, political and behavioral aspects when making decisions about their contracts, through mechanisms of incentive, information sharing and goal congruence (Fayezi et al., 2012). Astill latent challenge for supply chain managers interested in controlling sustainability risk is where and when to invest in behavior-oriented approaches to suppliers (Shafiq et al., 2017).
The next section addresses a literature review of the proposed theme. The following sections describe the methodological aspects, results, and conclusions, and research agenda proposed by the study.
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Supply chain management and agency theory
Agency theory is largely dependent on two significant areas of inquiry, namely, positive agency theory and principal-agent theory. The first, as a descriptive theory, for understanding behaviors in the real world. The second, derived from economic scholars through limited rationality, individual interest and the agent's risk aversion. (Fitri, Elmanizar, Yakub, & Cahyono, 2019). The final definition of the agent changes and may be linked to institutional differences of ownership within a supply chain. The agent is dynamic and will likely be the caretaker, and at the same time there is potential for the traditional definition of the agent to be challenged (Byrne & Power, 2014).
Studying supply chain management phenomena can be enriched by providing theories from other related fields (Gligor, Bozkurt, Russo, & Omar, 2019). Investigating sustainable strategy implementation from an internal agency relationship angle seems to be a good starting point. Amazon was exposed to massive negative headlines due to the unethical and illegal labor standards of its supplier, Foxconn. Adidas and Nike were exposed due to a Chinese textile supplier accused of dumping toxins into a river. In many organizations, there are demands beyond their direct control (Juttner, Windler, Podleisek, Gander, & Meldau, 2020). The purchasing and supplier teams in firms should consider establishing a socially sustainable supply chain (Cole & Aitken, 2019). On the other hand, monitoring the supplier's sustainability practices also has a positive effect on the performance of the focal company (Shafiq et al., 2017).
Due to the complexity of some supply chains, downstream companies can only monitor the relationship with their direct suppliers, but not the suppliers' suppliers (Wiese & Toporowski, 2013). From the retailers' perspective, they have a right to be suspicious when engaging in category management relationships with focal suppliers. Monitoring and the ability to punish opportunistic behavior do not necessarily act as effective safeguards. The opportunistic behavior of a focal supplier provokes responses from other suppliers, in addition to having a direct negative impact on the retailer's performance. These dynamics also occur in other industries, such as electronics and automotive (Morgan, Kaleka, & Gooner, 2007). The threat of opportunism can cause companies to withhold certain inside information when sharing chain risk information with partners (Ciliberti, De Haan, De Groot, & Pontrandolfo, 2011).
In the same scenario, the content of the contract mechanism and its implementation (such as benefits, problems and success factors) were described and discussed using an alignment of incentives and agency theory framework. Assumptions include information asymmetry, different goals and opportunism that should not be neglected. In order to solve agency and risk-sharing problems in principal-agent relationships, agency theory prescribes two formal (and ideal) types of management mechanisms to govern these relationships (Rungtusanatham, Rabinovich, Ashenbaum, & Wallin, 2007). One is the results-based management mechanism. On this, tops reward agents based on measured performance results (Ekanayake, 2004)...
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