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"Collaborative Planning, Forecasting, and Replenishment (CPFR) as a Relational Contract: An Incomplete Contracting Perspective"

Sung Min Kim and Joseph T. Mahoney


First Author :

Sung Min Kim
Department of MLR
Cleveland State University
Monte Ahuja Hall, BU 440
2121 Euclid Avenue
Cleveland, OH 44115-2214


Second Author :

Joseph T. Mahoney
Department of Business Administration
University of Illinois at Urbana-Champaign
Wohlers Hall, 140C, MC 706
1206 South Sixth Street
Champaign, IL 61820


Abstract :
This paper analyzes Collaborative Planning, Forecasting, and Replenishment (CPFR) from an incomplete contracting perspective. In the absence of economic incentive problems, CPFR enables trading partners to improve operational efficiency through a structured process of sharing and utilizing information across firm-level boundaries.

From the review of the incomplete contracts literature and a case study of CPFR arrangement, it is proposed that this IT-supported vertical arrangement also becomes the preferred governance mode as a relational contract. With efficient coordination and enhanced economic incentives for mutual commitment, CPFR allows contracting parties to avoid the difficulties of formal contracting while realizing the benefits that would be anticipated from vertical financial ownership.
Keywords :
CPFR, information sharing, relational contract, vertical integration
Manuscript Received : 2006
Manuscript Published : April 7, 2006
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