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

Abstract

Research on supply chain relationships tends to focus on power and asymmetric dependency. Our objective is to complement this 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.

Supplier performance in the public healthcare: internal social capital, logistics capabilities and supply chain risk management capabilities as antecedents in a developing economy

“…Bhardwaj and Ketokivi (2021) on railroad industry in India andOjha et al (2019) on manufacturing firms in the USA. Other recent studies on the enhancers of supplier performance have focused on antecedents such as supplier development(Brix-Asala et al, 2021), supplier selection and management…”

Mitigating risk perception in imbalanced supply chain relationships: roles of contract framing and IT integration

“…Based on RDT's elucidation of long-term collaborations, the weaker party continuously acquires resources from the dominant party by performing cooperative actions (Touboulic et al, 2014). In imbalanced supply chain relationships with high contractual recurrence, the dominant party allocates resources to help the weaker party develop capabilities (Bhardwaj and Ketokivi, 2021). Both parties conduct reciprocal behaviors to improve operational efficiency with minimal disputes (Schepker et al, 2014).…”

“…Contractual complexity restricts regulations when contingencies occur in allocating resources to the weaker party (Shen et al, 2019). By offering contingencies that specify the weaker parties' responsibility, complex contracts increase the difficulties of resource acquisition in changing external environments (Bhardwaj and Ketokivi, 2021). In cases like these, it is difficult for the weaker party to fulfill each contingency in the contract and gain the dominant party's support.…”

“…Previous studies have mostly considered contracts as a safeguarding mechanism that obviates moral hazards and attenuates opportunism (Lumineau and Malhotra, 2011). However, some scholars have pointed out that being a safeguarding mechanism is not the sole function and purpose of a contract (Bhardwaj and Ketokivi, 2021;Schepker et al, 2014). Instead, the major role of a contract in imbalanced supply chain relationships is to ensure smooth coordination between partners, which can reduce the weaker party's concerns regarding the collaboration.…”

“…Previous studies have mostly considered contracts as a safeguarding mechanism that obviates moral hazards and attenuates opportunism (Lumineau and Malhotra, 2011). However, some scholars have pointed out that being a safeguarding mechanism is not the sole function and purpose of a contract (Bhardwaj and Ketokivi, 2021; Schepker et al. , 2014).…”