Agency Theory and Supply Chain Management: Goals and Incentives in Supply Chain Organisations

Purpose Agency theory (AT) offers opportunities to examine how the risk of opportunism can be prevented or minimised along supply chain organisations using incentives to achieve goal alignment.

Methodology The study presents evidence of how members of such organisations achieve goal alignment through the use of incentives by empirically examining two complete supply chain organisations, including final customers, within the UK agri-food industry using a case study methodology.

Findings The findings show that contractual goals can be divided into two different categories, shared supply chain organisational goals, and independent goals of each individual participant. In addition to monitoring ability, incentives can also be classified into short term financial and long term social incentives. Product attributes, in particular credence attributes, are also identified as having implications for both goals and incentives.

Research limitations The supply chain perspective and case study methodology mean that the research findings cannot be generalised to other supply chains. A further limitation of the research is the use of different methods of data collection at the final customer point.

Practical Implications Managers must ensure that appropriate incentives for all departments and individuals are designed to deliver the strategic goals of the supply chain organisation.