The middleman as a panacea for supply chain coordination problems

Author(s)

Anil Arya, Clemens Löffler, Brian Mittendorf, Thomas Pfeiffer

Abstract

The prevalence of intermediaries (middlemen) in supply chains is often seen as a dying remnant of less efficient times. Despite predictions that supply chains will rapidly ''cut out the middleman'' as technological advances have eased logistics, middlemen have continued to thrive. In this paper, we demonstrate a transaction role of middlemen that may help clarify their staying power. In a model with self-interested decision-making by both a manufacturer and a retailer, wherein incentive misalignment creates investment and production inefficiencies, we show that the integrated (first-best) outcome can be achieved with simple cost-based contracts if and only if a middleman is present. We further show that the approach of utilizing a middleman to fully coordinate the supply chain is robust in that it can be applied to a variety of circumstances discussed in the literature, including multilateral investment/effort choices, multiple product providers, and logistical investments made by the middleman.

Organisation(s)

Department of Accounting, Innovation and Strategy

External organisation(s)

Ohio State University

Journal

European Journal of Operational Research

Volume

240

Pages

393-400

No. of pages

8

ISSN

0377-2217

DOI

https://doi.org/10.1016/j.ejor.2014.07.007

Publication date

01-2015

Peer reviewed

Yes

Austrian Fields of Science 2012

502052 Business administration

Keywords

ASJC Scopus subject areas

Information Systems and Management, Computer Science(all), Modelling and Simulation, Management Science and Operations Research

Portal url

https://ucris.univie.ac.at/portal/en/publications/the-middleman-as-a-panacea-for-supply-chain-coordination-problems(1ee9b8b3-8715-4621-ada9-618d604d4b4b).html