Effect of Transaction Cost and Coordination Mechanisms on the Length of the Supply Chain

A drastic reduction in the cost of transmitting information has tremendously increased the°ow and availability of information. Greater availability of information increases the ¯rm's abilityto manage its supply chain and, therefore, increases its operational performance. However, currentliterature is ambiguous about whether increased information °ows leads to either a reduction orincrease in transaction cost, which enable supply chains to migrate towards more market-basedtransactions or hierarchal-based transactions. This research empirically demonstrates that thegovernance structure of the supply chains changes towards market-based transactions due to alowering of transaction costs after 1987. Much of the results is based on the theory of TransactionCost Economics (TCE) and the role of asset speci¯city, uncertainty, and frequency in determin-ing whether or not industries are moving towards markets or hierarchies. Unlike previous supplychain management literature that focuses on relatively short supply chains consisting of two orthree supply chain members, Input-Output tables allow for analysis of supply chains with manymore members. This paper uses the 1982, 1987, 1992, and 1997 U.S. Benchmark Input-Outputtables published by the Bureau of Economic Analysis to analyze supply chains. In so doing, thisdissertation not only provides insight into how supply chain structures are changing but also o®ersa sample methodology for other researchers interested in using Input-Output analysis for furthersupply chain management research.The second part of the dissertation focuses on looking at the e®ect of di®erent coordinationmechanisms on supply chain length and supply chain performance using simulation. Three di®erentheuristics that model ordering policies are used to simulate coordination mechanisms. E±ciency ismeasured on the basis of minimized total net stock for each heuristic used. The results are checkedfor robustness by using four di®erent demand distributions. The results indicate that if a supplychain has minimized its net stock, then the heuristic used by various echelons in the supply chainneed not be harmonized. Also, disintermediation helps in improving the performance of the supplychain.