Lecture 1:
Ketokivi, M., & Mahoney, J. T. (2020). Transaction cost economics as a
theory of supply chain efficiency. Production and Operations
Management, 29(4), 1011-1031. https://doi.org/10.1111/poms.13148
Summary
The paper explores the application of Transaction Cost Economics (TCE) to supply chain
management, focusing on how governance structures and contractual arrangements
influence efficiency. It builds on the work of Williamson and others to analyze various
aspects of transaction costs, including the choice between market and hierarchical
governance structures, the role of contracts, and the impact of asset specificity. The paper
aims to highlight the relevance of TCE in understanding supply chain efficiency and the
nuances of contract design in different governance settings.
Key Points
1. TCE and Supply Chain Management:
○ TCE is used to analyze decisions between making internally (hierarchies) or
buying from external sources (markets).
○ It addresses not only the make-or-buy decision but also various aspects of
contract design, such as incentive structures and dispute resolution.
2. Governance Structures:
○ Different governance structures (markets, hybrids, hierarchies) are defined by
distinct forms of contract law and impact transaction efficiency.
○ Hierarchical structures can avoid the inefficiencies associated with
opportunism and contractual disputes by managing transactions internally.
3. Contract Design:
○ TCE provides insights into various contract design issues, including contract
duration, pricing, and hybrid contracts.
○ Long-term contracts and strategic alliances are analyzed to understand how
they manage risks and inefficiencies.
4. Asset Specificity:
○ Asset specificity plays a crucial role in determining the efficiency of
governance structures. Investments in specific assets can lead to hold-up
problems and require appropriate safeguards.
5. Opportunism:
○ TCE acknowledges the possibility of opportunism but does not claim it is
prevalent. It focuses on designing governance structures to manage potential
opportunistic behavior.
6. Incomplete Contracting:
○ Contracts are often incomplete due to bounded rationality. TCE explores how
organizations handle incomplete contracts and the costs associated with
adapting to unforeseen contingencies.
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, 7. Competence and Capability:
○ The paper touches on the need to unpack the concept of competence and its
relation to TCE, including the development of firm-level capabilities and
communication codes.
8. Agency Theory Comparison:
○ TCE is compared with agency theory, highlighting differences in their focus
(transactions vs. individuals), assumptions (fungibility vs. non-redeployability
of assets), and approach to minimizing costs.
9. Environmental and Behavioral Uncertainty:
○ TCE distinguishes between environmental (external) and behavioral (internal)
uncertainty, influencing the choice of governance mechanisms.
10. Implications for Management Practice:
○ The paper suggests that understanding TCE can help in managing
organizational structures, capital allocation, and employment contracts, and in
designing effective supply chain strategies.
11. Future Research Directions:
○ It indicates areas for further research, including the integration of TCE with
capabilities-based views and exploring the role of credible commitments in
managing supply chain relationships.
This summary captures the essence of the paper and its contribution to understanding
supply chain efficiency through the lens of Transaction Cost Economics.
More detailed:
1. TCE and Supply Chain Management:
○ TCE examines whether to produce goods or services internally (hierarchical
governance) or purchase them from external suppliers (market governance).
It helps in understanding not just the make-or-buy decision but also how
different contract designs—such as those covering incentives and dispute
resolution—affect supply chain efficiency.
2. Governance Structures:
○ TCE categorizes governance structures into markets, hybrids (like joint
ventures), and hierarchies (internal divisions). Each structure has different
implications for transaction efficiency based on factors like asset specificity
and transaction frequency. Hierarchies can mitigate issues like opportunism
and reduce transaction costs by keeping processes within the firm.
3. Contract Design:
○ Effective contract design is crucial for managing long-term relationships and
reducing transaction costs. TCE examines how various types of contracts—
such as long-term agreements and strategic alliances—help in managing
risks and ensuring that parties adhere to agreed terms.
4. Asset Specificity:
○ Assets that are highly specialized for a particular transaction can lead to
"hold-up" problems, where one party might exploit the other's dependence on
the specific asset. TCE suggests that governance structures need to include
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, safeguards to protect against these risks, such as detailed contracts or
vertical integration.
5. Opportunism:
○ Opportunism involves parties acting in self-interest with deceitful behavior.
TCE acknowledges that while opportunism is a potential risk, it is not
assumed to be pervasive. Instead, TCE focuses on designing governance
structures to manage and mitigate the potential for opportunistic behavior.
6. Incomplete Contracting:
○ Due to bounded rationality, contracts cannot anticipate every possible future
scenario. TCE explores how firms handle these gaps through adaptive
mechanisms and economic safeguards, emphasizing the need for flexible and
dynamic contract management.
7. Competence and Capability:
○ The paper highlights the importance of understanding a firm’s competence
and capabilities, such as its ability to develop communication codes and
routines. These factors influence whether a firm should handle transactions
internally or outsource them.
8. Agency Theory Comparison:
○ TCE differs from agency theory in its focus and assumptions. While agency
theory is concerned with individual behavior and minimizing monitoring costs,
TCE focuses on transaction costs and how different governance structures
can reduce maladaptation and inefficiencies.
9. Environmental and Behavioral Uncertainty:
○ TCE distinguishes between environmental uncertainty (external factors like
market changes) and behavioral uncertainty (internal factors like opportunistic
behavior). These uncertainties affect the choice of governance mechanisms
to manage transactions effectively.
10. Implications for Management Practice:
○ Insights from TCE can guide decisions about organizational structure, capital
investment, and employment contracts. It helps in designing efficient supply
chain strategies by considering the costs and benefits of different governance
structures.
11. Future Research Directions:
○ The paper suggests further exploring how TCE integrates with other theories,
like capabilities-based views, and the role of credible commitments in
maintaining effective supply chain relationships.
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, Lecture 2:
Chapters 3.1-3.2 of Nakano, M. (2020). Supply Chain Management:
Strategy and Organization. Springer. https://doi.org/10.1007/978-981-13-
8479-0 (pp. 39-49)
Summary of the Paper
The paper discusses the concept of performance within the framework of Supply Chain
Management (SCM), specifically focusing on the trade-offs between efficiency and
responsiveness. It outlines various performance indicators used to evaluate SCM,
categorizing them into two primary types: efficiency and responsiveness. Efficiency-oriented
strategies aim to optimize operational productivity and asset utilization, while
responsiveness-oriented strategies focus on reducing lead times and improving customer
service levels. The paper further explores the inherent trade-offs in SCM, such as the
balance between inventory levels and operational costs, and the trade-off between efficiency
and responsiveness. These trade-offs are crucial for firms to manage as they attempt to
optimize their supply chain performance in alignment with their overall strategic goals.
Key Points from the Paper
1. Performance Indicators in SCM:
○ Performance indicators are categorized into efficiency and responsiveness.
○ Efficiency indicators focus on operational productivity, cost reduction, and
asset utilization.
○ Responsiveness indicators are concerned with lead time reduction and
improving customer service levels.
2. Efficiency Indicators:
○ Efficiency-oriented supply chains aim to increase productivity and reduce
costs.
○ Key metrics include labor cost per product, raw material cost per product,
manufacturing cost-to-sales ratio, and logistics cost-to-sales ratio.
○ Asset efficiency is measured using inventory turnover periods, which differ
across industries.
3. Responsiveness Indicators:
○ Responsiveness refers to a firm's ability to quickly adapt to changes in
volume, mix, or location in response to market conditions.
○ Key metrics include on-time delivery rate, order fill rate, and delivery
dependability.
○ Responsiveness requires cross-functional initiatives to shorten lead times and
improve customer service.
4. Trade-Offs in SCM Performance:
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