Supply risk management from a transaction cost and social exchange theory perspective

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Hoffmann, Petra ; Schiele, Holger ; Song, Michael ; Krabbendam, Johannes Jacobus (2012)

Supply risk management gained prominence over the last decade, both in the academic discourse and in practical application. This research examines the influence of Transaction Cost characteristics -behavioral uncertainty, environmental uncertainty and asset specificity on supply risk management performance. We also identify two antecedents of the transaction cost constructs based on social exchange theory: dependency and preferred customer status. We used survey data to discover a positive influence of supplier’s asset specificity on supply risk management performance, and that behavioral uncertainty negatively influences supply risk management performance. Furthermore, we showed that both dependency and preferred customer status have a significant effect on supplier’s asset specificity and behavioral uncertainty. With this research we developed a framework to integrate transaction cost theory and social exchange theory to investigate supply risk management, thereby contributing to the emerging literature on this combination as a more complete governance mechanism to manage supply relationships. We also extend the existing knowledge on transaction cost theory by showing that from a supply risk management point of view, behavioral uncertainty is by far the most important determinant to consider. In order to manage supply risks effectively companies should avoid dependency, though its negative effects can to some degree be compensated by preferred customer status, as this will increase supplier’s specific investments and lower behavioral uncertainty.
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