Collaborative planning, forecasting and replenishment (CPFR) as a relational contract: an incomplete contracting perspective Sung Min Kim* Department of Management, School of Business Administration, Loyola University Chicago, Maguire Hall, 422, 1 E. Pearson, Chicago, Illinois, 60611, USA Fax: +1 (312) 915-6988 E-mail: firstname.lastname@example.org *Corresponding author
Joseph T. Mahoney
Department of Business Administration, College of Business, University of Illinois at Urbana-Champaign, Wohlers Hall, 140C, 1206 South Sixth Street, Champaign, Illinois, 61820, USA Fax: +1 (217) 244-7969 E-mail: email@example.com Abstract: This paper analyses collaborative planning, forecasting and replenishment (CPFR) from an incomplete contracting perspective. In the absence of economic incentive problems, CPFR enables trading partners to improve operational efficiency through a structured process of learning by both sharing and utilising information across firm-level boundaries. From a review of the incomplete contracts literature and a case study of the CPFR arrangement between P&G and Wal-Mart, this paper posits CPFR as a relational contract for managing economic incentive problems, which can arise in a vertical supply relationship due to transaction costs, agency costs, and relative bargaining positions. Theoretical propositions are developed regarding when this IT-supported intermediate form of vertical contracting is preferred to other governance modes and how CPFR can be an effective relational contract to support economic exchange and to create intellectual capital between trading partners. With efficient vertical coordination and enhanced specialisation incentives for mutual commitment, CPFR allows contracting parties to avoid the difficulties of formal contracting while realising the benefits that would be anticipated from vertical financial ownership. Keywords: CPFR; information sharing; mutual commitment, relational contract; vertical integration. Reference to this paper should be made as follows: Kim, S.M. and Mahoney, J.T. (xxxx) ‘Collaborative planning, forecasting and replenishment (CPFR) as a relational contract: an incomplete contracting perspective’, Int. J. Learning and Intellectual Capital, Vol. X, No. Y, pp.000–000.
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S.M. Kim and J.T. Mahoney
Biographical notes: Sung Min Kim received his PhD in Business Administration from the University of Illinois at Urbana-Champaign. He is an Assistant Professor of Strategy at the School of Business Administration, Loyola University Chicago. His research interests span the disciplines of strategic management, global management, and strategic entrepreneurship from the perspective of organisational economics. He has published articles in Strategic Management Journal, Journal of International Management, Journal of Retailing, Industrial Relations, Business Horizons, and Thunderbird International Business Review. He has also presented his research projects at several conferences organised by the Academy of Management and the Academy of International Business. Currently he advises Asian multinational enterprises and research institutes. Joseph T. Mahoney received his PhD in Business Economics from Wharton, University of Pennsylvania. He is Investors in Business Education Professor of Strategy, College of Business, University of Illinois at Urbana-Champaign. He has published over 50 articles in outlets such as Journal of Business Venturing, Journal of Management, Journal of Management Studies, Organization Science, Strategic Entrepreneurship Journal, Strategic Management Journal, and Strategic Organization. His publications have been cited from scholars in over 55 countries. His 2005 Sage book, Economic Foundations of Strategy has been adopted by over 30 doctoral programs. He is an Associate Editor of International Journal of Strategic Change Management, and Strategic...