Impact of metric-alignment on supply chain performance: a behavioral study

• DOI: https://doi.org/10.1108/IJLM-01-2021-0061
• Published date: 17 January 2022
• Date: 17 January 2022
• Pages: 365-384
• Subject Matter: Management science & operations,Logistics
• Author: Arunachalam Narayanan,Rafay Ishfaq

Impact of metric-alignment on

supply chain performance:

a behavioral study

Arunachalam Narayanan

Department of Information Technology and Decision Sciences,

University of North Texas, Denton, Texas, USA, and

Rafay Ishfaq

Supply Chain Management, Auburn University, Auburn, Alabama, USA

Abstract

Purpose –Previous research has shown that firms are struggling to incorporate collaboration among supply

chain partners. This paper presents a new approach to incorporate collaboration using metric-alignment. The

analysis provides key insights regarding the usefulness of this approach to synchronize decision-making that

leads to reduced bullwhip effect, less backordering and lower supply chain costs.

Design/methodology/approach –This research is based on a large-scale behavioral study comprising 556

participants in multi-echelon supply chain games. Supply chain decisions from these experiments are

evaluated to study the impact of metric-alignment on managerial decision-making and the corresponding

effects on the overall supply chain performance.

Findings –Results show that the metric-alignment approach offers an informal and self-enforced governance

mechanism that changes managerial decision-making behaviors and improves supply chain performance.

Results also show this approach to yield operational and financial benefits for all supply chain partners in the

form of reduced bullwhip effect, less backordering and lower supply chain costs.

Originality/value –This is the first behavioral study of its kind that evaluates a new approach to incorporate

collaboration in supply chains using metric-alignment. This approach avoids the shortcomings of current

industry practices of using monetary penalties, such as on-time in-full (OTIF) mandates in supply contracts.

The study shows that metric-alignment approach can improve overall supply chain performance while offering

mutually beneficial rewards for all supply chain partners.

Keywords Supply chain performance, Metric-alignment, Collaboration, Bullwhip effect

Paper type Research paper

Introduction

In recent times, supply chains have been operating under conditions of extreme market

competition and high customer expectations for quick and low-cost fulfilment of their

shopping needs (Marchet et al., 2018;Ishfaq et al., 2016). Competing in this business

environment requires supply chain members to collaborate effectively in order to ensure that

retail stores and distribution facilities are properly stocked and replenished in a timely

manner. However, the hyper-competitive market is forcing firms to incorporate harsh

punitive mandates that will impede collaboration with supply chain partners. For example,

Walmart has started requiring its key suppliers to comply with 95% on-time in-full (OTIF)

replenishment goal or face substantial financial penalties (Boyle, 2017). Other firms, such as

Target, have also rolled out similar mandates.

These news about the use of supply contracts that mandate performance through punitive

measures have started a debate in the academic and practitioner circles regarding the

usefulness of such practices (Berman, 2016). Previous research has supported the use of

supply contracts and information exchange as useful tools to incorporate supply chain

collaboration that can benefit all parties (Fawcett et al., 2011). However, these approaches

have not be been very successful in practice (Barratt, 2004), thereby highlighting the need for

additional research in this area (Fawcett et al., 2010). Our paper presents a new collaboration

Impact of

metric-

alignment

365

The current issue and full text archive of this journal is available on Emerald Insight at:

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Received 31 January 2021

Revised 9 November 2021

Accepted 2 January 2022

The International Journal of

Logistics Management

Vol. 33 No. 1, 2022

pp. 365-384

© Emerald Publishing Limited

0957-4093

DOI 10.1108/IJLM-01-2021-0061

approach based on metric-alignment that offers a practical way for firms to synchronize

supply chain decisions. Under this approach, a common performance goal (i.e. metric-

alignment) creates an informal and self-enforced governance mechanism that can work better

than a rigid contractual mandate, like OTIF.

Consider the case of a retail distribution center (DC) that the authors visited during this

research. DC management stated that they are routinely evaluated on metrics that deal with

local operational efficiency and order fulfillment performance. In this setting, management’s

primary focus is to meet the high fill rate for replenishment orders received from stores while

keeping their own inventory expenses in check. However, such fill rate target may not be

reflective of the actual on-shelf availability at the stores, rather a consequence of store’s

lumpy orders upstream to the DC (Narayanan et al., 2019). DC management shared their

concerns regarding this issue that a sole focus on meeting local fill rates is promoting

ineffective decision-making throughout the supply chain. They cited the consequences of

poor decision-making in terms of excessive inventory due to the bullwhip effect and poor

profitability of resulting for sub-par supply chain performance. Unfortunately, this situation

is not unique to retail DCs, rather is prevalent in other supply chain echelons, where OTIF-like

supply contracts may further exacerbate the situation.

In this paper, we present a new metric-alignment approach that helps synchronize

managers’local supply chain decisions to improve the overall supply chain performance. We

evaluate the usefulness of this collaboration approach through large-scale behavioral

experiments, specifically to study the behavioral aspects of managers’decision-making. The

analysis reveals that the metric-alignment approach creates value for collaborative partners

through shared operational and financial benefits. The comparative analysis shows that such

benefits are far higher in the metric-alignment approach than a traditional supply chain.

These benefits are realized not only downstream at the retailer, but also for upstream

partners (wholesalers, distributors and manufacturers) in the form of reduced bullwhip effect,

less backordering and lower supply chain costs. Our analysis also highlights a key element of

the metric-alignment approach that it does not force supply chain partners to defer control of

their decisions to a powerful downstream retailer, as the current approach of mandates/

penalties in supply contracts entails. Rather, local decisions are aligned through an informal

and self-enforced governance mechanism such that all partners reap the benefits while

improving supply chain performance as a whole.

Literature review

In a collaborative supply chain, activities and processes are coordinated as a reflection of its

customer focus. This focus leads partner firms to organize supply-side activities in different

echelons to meet demand at the customers’end (Stank et al., 2012). In this context, prior

literature offers two facets of interorganizational collaboration (Ma et al., 2020;Soosay and

Hyland, 2015): cooperation and coordination. The cooperation lens views interorganizational

relationships as the conduit to pursue shared goals. Cooperation in this regard is a behavioral

outcome that arises out of the organizations’commitment to each other regarding the

provisioning and appropriations of resources dedicated to collaborative efforts (Gulati et al.,

2012). On the other hand, the coordination lens focuses on the mechanisms to enable

organizations to collaborate and work together (Im et al., 2019). These mechanisms

incorporate joint de cision-making, infor mation sharing and organizational feedback

arrangement to direct cross-organizational efforts to improve supply chain performance

(Ellinger et al., 2000). We build our research using the coordination lens of supply chain

collaboration.

In this regard, we explored different coordination mechanisms identified in supply chain

literature (Cao and Zhang, 2011): information sharing, goal congruence, decision

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