Supply chain alignment as process: contracting, learning and pay-for-performance

The purpose of this paper is to understand how buyers and suppliers in supply chains learn to align their performance objectives and incentives through contracting.

Two longitudinal case studies of the process of supply chain alignment were conducted based on 26 semi-structured interviews and 25 key documents including drafts of contracts and service level agreements.

The dynamic interplay of contracting and learning contributes to supply chain alignment. Exchange-, partner- and contract framing-specific learning that accumulates during the contracting process is used to (re)design pay-for-performance provisions. Such learning also results in improved buyer-supplier relationships that enable alignment, complementing the effect of contractual incentives.

The study demonstrates that the interplay of contracting and learning is an important means of achieving supply chain alignment. Supply chain alignment is seen as a process, rather than as a state. It does not happen automatically or instantaneously, nor is it unidirectional. Rather, it is a discontinuous process triggered by episodic events that requires interactive work and learning.

Development of performance contracting capabilities entails learning how to refine performance incentives and their framing to trigger positive responses from supply chain counterparts.

The paper addresses supply chain alignment as a process. Accordingly, it stresses some important features of supply chain alignment.