<p>Principal
agent theory is widely used to model supply chain relationship, in which a
supplier is the agent and a manufacturer is the principal. Both the
manufacturer and supplier can influence product quality and consequentially
share costs of product failures. Rich theoretical results under the principal agent
model framework have been accumulated in the last two decades, but empirical evidence
on whether the Stackelberg’s leadership game truly imitates practical supply
chain relationship remains unfound. We study the domestic automobile industry
in the last decade and provides to our best knowledge the first empirical
evidence to assess the validity and practicality of principal agent theory and draw
the implications of principal agent theory on supply chain relationship costs.
Our empirical results suggest that Japanese OEMs behave more like principal
agent theory suggests than the US OEMs in general and thus gain significant
benefits in terms of marginal effort costs in motivating suppliers’ quality
improvement behaviors and reducing overall manufacturer’s quality costs.
Specifically, Toyota behaves closest to the optimal solution in the principal
agent theory and therefore has the lowest manufacturer effort costs in
improving product quality and achieves the overall lowest manufacturer’s quality
costs in supply chain. Honda and Nissan are ranked 2<sup>nd</sup> and 3<sup>rd</sup>
in terms of principal agent behaviors, but their marginal quality improvement
effort costs are 33% and 61% higher than Toyota, and their total manufacturer’s
quality costs are both around 17% higher compared to industrial leader Toyota by
our estimate. US OEMs GM, Ford and Chrysler are believed to behave inconsistent
to principal agent theory suggest, and consequently suffer a much higher
marginal effort cost in motivating supplier’s quality improvement than Toyota as
well as the overall manufacturer’s quality costs. GM and Ford are estimated
doubled marginal effort costs than Toyota, and Chrysler is even higher at 1.6
times. GM’s overall manufacturer’s quality cost is 24% higher than Toyota, Ford
is around 31% higher and Chrysler is around 48% higher. Our analysis gives a new
perspective from principal agent theory to explain why Japanese OEMs especially
Toyota has a better supply chain quality costs than US OEMs as literature and
consensus suggested. In addition, we contribute in literature by linking the
principal agent theory with automotive industrial data and first ever empirically
validate the legitimacy of principal agent theory in modeling
manufacturer-supplier relationship and quantitatively derive practical
conclusions on marginal effort costs and manufacturer’s total supply chain quality
cost implications. To guarantee the robustness of the empirical results,
various sensitivity analyses are conducted and our main conclusions remain
unchanged. </p>
| Identifer | oai:union.ndltd.org:purdue.edu/oai:figshare.com:article/8029037 |
| Date | 10 June 2019 |
| Creators | Tian Ni (6623765) |
| Source Sets | Purdue University |
| Detected Language | English |
| Type | Text, Thesis |
| Rights | CC BY 4.0 |
| Relation | https://figshare.com/articles/SUPPLY_CHAIN_RELATIONSHIP_FOR_QUALITY_IMPROVEMENT_EMPIRICAL_TESTS_ON_PRINCIPAL_AGENT_THEORY/8029037 |
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