The Benefits of Decentralized Decision-Making in Supply Chains

33 Pages Posted: 4 Sep 2012 Last revised: 14 Jan 2020

See all articles by Elena Belavina

Elena Belavina

Cornell SC Johnson College of Business

Date Written: September 4, 2012

Abstract

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.

Suggested Citation

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

Elena Belavina (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
580
Abstract Views
3,697
rank
50,662
PlumX Metrics