Bilateral dependency and supplier performance ambiguity in supply chain contracting: Evidence from the railroad industry

Akhil Bhardwaj, Mikko Ketokivi

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Research on supply chain relationships tends to focus on power and asymmetric dependency. Our objective is to complement this approach by examining contractual challenges in the context of bilateral dependency. Our specific empirical focus is on how Indian Railways, one of the largest railroads in the world, manages warranty claims related to engine failures. Warranty resolution is complex, because failures typically involve the simultaneous failure of several engine subsystems provided by different suppliers, giving rise to supplier performance ambiguity. Through a combination of theoretical reflection rooted in transaction cost economics and an empirical analysis of Indian Railways supply chain, we argue that in the case of bilateral dependency, the “benign approach” is more efficient than the “muscular approach,” to use Oliver Williamson’s terminology. Specifically, while the latter is founded on unilateral decisions by the comparatively more powerful party, the former is based on voluntary long-term cooperation, and calls for mutual credible commitments and joint problem-solving. Additionally, we highlight that even if dependency is asymmetric at the outset, it can develop bilateral features over time. Theoretically, our research offers an enhanced understanding of trust in buyer-supplier relationships, emphasizing its organizational as opposed to personal basis.
Original languageEnglish
JournalJournal of Operations Management
Early online dateJun 2020
DOIs
Publication statusE-pub ahead of print - Jun 2020

Keywords

  • Transaction cost economics
  • System failure
  • Supply chain management
  • Bounded hindsight
  • Outsourcing
  • Contracting

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