Monitoring and incentives in a supply chain: an agency-theoretic perspective

Abstract

Monitoring and incentives in a supply chain: a agency-theoretic perspective Abstract: A principal-agent relationship can be established up for a supply chain, in which the supplier acts as the principal while the manufacturer acts as the agent. This study uses the principal-agent model to explore the relationships between multiple suppliers and a single manufacturer. A mechanism of incentives is introduced in the model, which encourage themanufacturer to make more effort to reach the expectations of suppliers; thus, they maximize profits in the supply chain. Comparisons and analyses have been made on both united- and separate-designed compensation mechanisms of multiple suppliers (principals) to a single manufacturer (agent) and on both multi- and single-incentive policies in this study. Fruitful results were found that will be helpful for building the partnership between supplier and manufacturer.

Keywords:

• Supply chain
• principal-agent model
• multi-principal
• multi-incentive mechanism
• compensation plan
• information asymmetric