Risk sharing in supplier relations: an agency model for the Italian air‐conditioning industry

Abstract

This study of risk sharing in the Italian high precision air conditioning (AC) industry confirms agency theory predictions that buyers absorb risk to a non‐negligible degree, and that they absorb more risk (a) the greater the supplier's environmental uncertainty, (b) the more risk averse the supplier, and (c) the less severe the supplier's moral hazard. The analyzed buyers accommodate for unforeseen and uncontracted‐for cost fluctuations, which is consistent with relational contract theory. The study clarifies the relationship between risk sharing and the supplier's size, technological capability, financial stability, and cost fluctuation. It also suggests how buyers may adjust their risk‐sharing strategy as suppliers grow, develop technological capabilities, and change financial structure. Copyright © 2007 John Wiley & Sons, Ltd.

Business relationship portfolios and subcontractors' capabilities

“…The studies on "lean suppliers" by the International Motor Vehicle Program at MIT (Cusumano & Takeishi, 1991;Helper & Sako, 1995, 1998Helper & MacDuffie, 1997;Fine, 1998) showed that North American and European assemblers and suppliers were converging towards Japanese-style supplier relation management, moving from competitive, adversarial relationships, to more cooperative ones, characterized by risk-sharing practices (Camuffo, Furlan, & Rettore, 2007). More recently, Helper, MacDuffie and Sabel (2000) suggest that "voice" practices like benchmarking, co-design, and "root cause" error detection and correction are the pragmatist mechanisms that constitute "learning by monitoring" a relationship in which buyers and suppliers continuously improve their joint products and processes and therefore their capabilities.…”

The effects of risk and reward sharing on quality performance

“…According to Camuffo et al (2007), task programmability can help to reduce the information asymmetry.…”

“…0.770 (Camuffo et al, 2007;Mentzer et al, 2001) RIS2 When there are any problems in the supply materials (or product), our company and suppliers will cooperate with each other to share the related costs.…”

“…Therefore, both parties can avoid the destructive consequences of a quality crisis. In supply chain management (SCM) literature, risk sharing refers to a type of supply chain risk management (SCRM) activity (Norrman and Jansson, 2004;Manuj and Mentzer, 2008); it is used to deal with unpredicted uncertainty in upstream supply risk in order to reduce loss in transaction (Camuffo et al, 2007). Reward sharing often intertwines with risk sharing, since benefit is taken as an incentive to both parties to mitigate the supply chain risk together (Harland et al, 2004).…”

“…The literature argues that risk sharing is an appropriate method to mitigate the risk in the supply chain (Camuffo et al, 2007;Fan et al, 2016). Risk sharing practice could also be ideal for mitigating the quality issues raised in the supply chain.…”