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Conceptualizing co-ordination and competition in supply chains as complex adaptive system

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Abstract

A model has been developed to explore the dynamics of outsourcing strategies and specialization effects. Using transaction cost economics the literature showed that IT investments can create an incentive for a firm to pursue a specialization strategy, spinning off and outsourcing peripheral activities to focus on its core competence. Web services technology, for example, which has been explicitly designed to facilitate inter-operability of machine-to-machine communication, is expected to support such strategy. We extend this analysis proposing a research model that explicitly recognizes industry-level feedback. While specialized firms can enjoy lower production cost they are also more reliant on market conditions and interaction. This dependence exposes a specialized firm to the risk of market failure or vertical foreclose, all of which increase transaction cost. The complication from a modeling perspective has been to properly recognize industry structure and transaction cost as endogenous variables. As a solution we propose formalizing this problem as a complex adaptive system. We present a model with the firm as unit of analysis and its behavior based on micro-economic cost theory and the theory of noncooperative games. The paper follows Zmud’s concept of a “pure theory” manuscript adapted from the Academy of Management Review (1998).

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Acknowledgements

A previous version of the paper had been presented at WEB 2003, a PRE-ICIS workshop on e-business, in Seattle, WA. The authors thank Eric Brynjolfsson and Aloe Chaturvedi for their comments on an early version of the multi-agent system. They also thank the participants of the INFORMS 2002 annual meeting, E-Business Strategy Cluster session No. 3, in San Jose, and the participants at the Computational Economics and Finance Conference 2000, session on Economic Simulations in Swarm, in Barcelona for thoughtful suggestions.

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Authors and Affiliations

  1. Center for Telecom Management, University of Southern California, 3415 S. Figueroa St., Los Angeles, CA, 90089-0871, USA

    Chris Schlueter Langdon

  2. Information Systems & Operations Management Department, The University of Texas at Arlington, 19437, Arlington, TX, 76019, USA

    Riyaz T. Sikora

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  1. Chris Schlueter Langdon
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  2. Riyaz T. Sikora
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Correspondence to Chris Schlueter Langdon.

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Langdon, C.S., Sikora, R.T. Conceptualizing co-ordination and competition in supply chains as complex adaptive system. ISeB 4, 71–81 (2006). https://doi.org/10.1007/s10257-005-0005-6

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