Washington, Nov 23 : When it comes to cementing strong working relationships among supply chain partners, cordiality and mutually beneficial arrangements can be more important than hard-negotiated deals, according to a new study.
The new study led by Christoph H. Loch of INSEAD and Yaozhong Wu of the National University of Singapore Business School has shown that social preferences have a significant impact on the decisions of supply chain partners.
When status considerations matter, the partners act more competitively, trying to out-do the other side, even at times damaging their own profits.
Incentives can cause people to be calculating rather than oriented toward a win-win.
Behaviour is also influenced emotionally by social preferences i.e. people care about status ("how much do I have relative to you?") and reciprocity ("if you were nice to me, I want to reciprocate; if you were not nice, I want to retaliate").
In the study, human subjects repeatedly interacted in a supply chain situation facing price-sensitive demand.
They found that social preferences have a significant impact on the decisions of supply chain partners.
If reciprocity considerations are important, the partners can start a "virtuous cycle" of establishing a pattern of win-win actions, sustained over time.
The authors suggest that managers should not rely solely on financial incentives. Formal incentives for collaboration become more robust when emotionally supported by relationships.
The study appears in Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS).