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Taking contracts to the next level : collaborative performance improvement

Lütticke, Lisa (2016) Taking contracts to the next level : collaborative performance improvement.

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Abstract:Maintenance companies in capital-intensive industries are facing challenges that make it more and more difficult to improve their performance. Therefore, they have to transfer their goals to their suppliers and reach collaborative performance improvement. According to the agency theory, the contract between a maintenance company and its supplier is a mean to achieve this end. This paper analyses how such a contract should be designed. The analysis is based on action research done in the procurement department of the Dutch maintenance company NedTrain BV. Literature suggests the use of Performance-Based Contracting, but semi-structured interviews with employees from NedTrain and one of its suppliers showed that the use of PBC is restricted by the buyer’s internal processes, product characteristics, the industry structure, and restrictions of the public procurement law. These restrictions can result in pitfalls for which strategies are defined that help to overcome them. Within the contractual relation the elements performance, incentives, and risk need to be specified. While a pure pay-for-performance contract is not possible in the case situation, incentives and penalties can be tied to the (non-)achievement of product-related performance targets. These rewards need to balance the risk that is shifted to the supplier by the contract. Furthermore, NedTrain’s supply chain can be modelled as a triad because the company is buying directly from suppliers from different tiers. The supply chain configuration leads to goal incongruence between the tiers and complicates collaborative performance improvement. Previous research suggests that a social contract between supplier and buyer helps to align their goals.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/70168
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