Credit guarantee mechanism with information asymmetry: a single sourcing model
Journal
International Journal of Production Research
Journal Volume
58
Journal Issue
16
Pages
4877-4893
Date Issued
2020
Author(s)
Abstract
This study concerns small and medium-sized enterprise (SME) suppliers suffering from cash constraints in operations, money shortages with possible disruptions and cost uncertainty because of the distributor’s supply risk and the information asymmetry. Thus, this study adopts the distributor’s (buyer’s) perspective and applies a credit guarantee mechanism with an incentive contract as a risk management tool. The distributor can adopt incentive contracts to reveal the type of its supplier; the higher the inefficient supplier’s contribution to the distributor, the smaller the gap between procurement contract quantities with the efficient supplier and procurement contract quantities with the inefficient supplier. An insight into practice is that incentive contracts are tools for acquiring ideal suppliers in the supply base and help companies such as Li & Fung enhance their competitive capabilities. ? 2020 Informa UK Limited, trading as Taylor & Francis Group.
Subjects
Supply chains; Competitive capabilities; Cost uncertainty; Incentive contracts; Incentive theories; Information asymmetry; Procurement contracts; Small- and medium-sized enterprise; Supply chain risk management; Risk management
Type
journal article