The Benefits of Decentralized Decision-Making in Supply Chains

Elena Belavina

The University of Chicago Booth School of Business

Karan Girotra

INSEAD - Technology and Operations Management

September 4, 2012

INSEAD Working Paper No. 2012/79/TOM

The inefficiency of decentralized decision-making is one of the most influential findings of the supply chain coordination literature. This paper shows that with the possibility of continuing trade, decentralization can be beneficial in improving supply chain performance. In a supply chain with decentralized decision-making and continuing trade, it is easier to incentivize players to coordinate on efficient actions. There are more gains to be shared from coordination, and by virtue of each player being a smaller influence on the system, any individual player’s opportunism is less of a threat to coordination. These stronger incentives to coordinate manifest themselves in higher profits of supply chains with decentralized decision-making and additional terms of contracting acceptable to all players. Our analysis demonstrates that the widely accepted inefficiency of decentralized decision making is an artifact of the simplifying assumption of one-off trade, and identifies conditions for departures from this result with continuing trade. The newly identified phenomena provide a possible explanation for the paradoxically good performance of very decentralized supply chains seen in emerging market cooperatives, urban logistics, micro-retailing, and other settings.

Number of Pages in PDF File: 35

working papers series

Download This Paper

Date posted: September 4, 2012  

Suggested Citation

Belavina, Elena and Girotra, Karan, The Benefits of Decentralized Decision-Making in Supply Chains (September 4, 2012). INSEAD Working Paper No. 2012/79/TOM. Available at SSRN: http://ssrn.com/abstract=2141214 or http://dx.doi.org/10.2139/ssrn.2141214

Contact Information

Elena Belavina
The University of Chicago Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
+1 773 834-3038 (Phone)
HOME PAGE: http://www.chicagobooth.edu/faculty/bio.aspx?person_id=49970841600

Chicago Booth School of Business Logo

Karan Girotra (Contact Author)
INSEAD - Technology and Operations Management ( email )
Boulevard de Constance
77 305 Fontainebleau Cedex


Feedback to SSRN

Paper statistics
Abstract Views: 1,081
Downloads: 214
Download Rank: 81,580

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.282 seconds