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Safety stocks are stocks “which protect against [unexpected] variations in demand and lead or resupply times” (Schneider, 1985, p. 118).
The “make-or-buy decision” is often debated within the framework of transaction cost economics which was first discussed in Coase’s (1937) seminal work on transaction cost and which was further developed by Williamson (1979 and 1981). According to TCE, transaction cost varies depending on the characteristics of the transaction associated with the exchange relationship, for example, asset specificity, uncertainty, and frequency. TCE argues that buyers should internalize (or make) their supply requirements if transaction costs are high which is, for example, the case if specific assets are involved in the exchange relationships because under such circumstances the hazards of opportunism by external agents or suppliers always exist. If transaction cost is low, buyers should outsource (or buy) their requirements from suppliers.
To consolidate means to “assemble small shipments into a single, larger shipment” (Johnson et al., 1999, p. 560).
“The principle of postponement proposes that the time of shipment and the location of final product processing in the distribution of a product be delayed until a customer order is received” (Zinn & Bowersox, 1988, p. 117). There are different kinds of postponements. Zinn & Bowersox (1988), for example, differentiate five types: labeling, packaging, assembly, manufacturing, and time. For more on postponement, see e.g. Zinn & Bowersox (1988) or Heskett (1977).
For more on motives for forming an alliance, see Frankel and Whipple (1996).
This kind of competition is called time-based competition and is, for example, discussed by Hise (1995).
In a principal-agent relationship, a principal (e.g. a manufacturer) asks an agent (e.g. an LSP) to do something for it whereby this relationship is, among other things, characterized by information asymmetries: The agent always knows more than the principal, i.e. it has an information advantage over the principal (Schmidt-Mohr, 1997). One particular type of information asymmetry is called “hidden intentions” because the principal does not know the agent’s true intentions. The agent might hold up the principal ex post contracting and after the principal has become dependent on the agent, e.g. because of having made a specific investment (Klein et al., 1978). As noted by Klein et al. (1978), Goldberg (1976) was the first to discuss the “hold up-problem”. However, he did not address this issue in the context of two or more private companies engaging into a business relationship, but focused on the “hold up-problem” in contracting relative to government regulation as a means of avoiding or reducing the threat of loss of quasi rent. A hold up might, for example, manifest itself in an excessive price increase for the service rendered by the agent. Such opportunistic behavior in the form of reneging on contracts is very likely to occur “in the presence of appropriable specialized quasi rents” (Klein et al., 1978, p. 297) which are created by specialized investments. These relationships are examined within the framework of the agency theory which is divided into positive agency theory and principal agency theory. It is a core assumption of the latter theory that principal and agent are asymmetrically informed and that problems like adverse selection and moral hazard arise as a consequence. There are different categories of asymmetric information, e.g. hidden intentions, hidden actions, hidden information, or hidden characteristics. The origins of the agency theory can be traced back to Spence and Zeckhauser (1971) as well as Ross (1973), who coined the terms “agency relationship” and “agency problem”. Other groundbreaking works in this area are Mirrless (1974, 1976), Grossmann and Hart (1983), and Holmstrom (1979) (see Schmidt-Mohr, 1997).
For an overview of information systems valuation methods see for example Weitzel et al. (2003).
SCC is the abbreviation for “Supply Chain Collaboration” (ICON, 2003b) and ICON Gesellschaft für Supply-Chain-Management mbH (ICON) is a company located in Karlsruhe, Germany, offering various Supply Chain Management solutions (ICON, 2003a).
Gross demand is a company’s need for certain parts in order to build a certain amount of its products. For example, if Audi wants to build five cars, its gross demand of engines is five. Currently, orders usually do not reflect gross demand, but so-called net demand. Net demand is calculated based on gross demand: It is determined by subtracting available inventory from gross demand and by considering lot size and transportation optimization as well as other optimization measures and restrictions like container management (Roland Scheidler at GEKO information meeting, June 04, 2003; Stefan Mayer, personal communication, May 21, 2003). Supposedly, the exchange of gross demand is one of the benefits of using tools like ICON-SCC.
In a VMI system, the manufacturer is responsible for replenishing all merchandise and not only standard merchandise. Under this approach “suppliers generate orders based on mutually agreed upon objectives for inventory levels, fill rates and transaction costs, and demand information sent by their distributor customers. In this process, the buying function moves from the distributor back to the supplier, who takes over responsibility for placing orders. The distributor sends sales and inventory data to the supplier on a pre-arranged schedule-typically, daily-and the VMI system determines what should be ordered based on the criteria the supplier and distributor have established. The supplier monitors the inventory status information to make sure that the distributor always has the appropriate amount of stock on hand when needed. The distributor can override the system when necessary, for example, if they anticipate an increased demand in the market” (Hall, 2002).
CMI is defined by the Collaborative Planning, Forecasting and Replenishment Committee as follows: “A form of Continuous Replenishment (CRP) in which the manufacturer is responsible for the replenishment of standard merchandise, while the retailer manages the replenishment of promotion merchandise” (CPFR, n.d., p. 1).
“An inventory control system that controls material flow into assembly and manufacturing plants by coordinating demand and supply to the point where desired materials arrive just in time for use. An inventory reduction strategy that feeds production lines with products delivered ‘just in time’. Developed by the auto industry, it refers to shipping goods in smaller, more frequent lots” (Vitasek, 2002).
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© 2006 Deutscher Universitäts-Verlag ∣ GWV Fachverlage GmbH, Wiesbaden
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(2006). Cooperation in Supply Chains and SCM Software Use in the European Automotive Industry. In: Evaluation of Cooperative Planning in Supply Chains. DUV. https://doi.org/10.1007/3-8350-5714-6_3
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