Research On Supply Chain Cost Management Based On Principal-Agent Theory

With the development of the competition environment, the needs of customers become diversified. If enterprises always adopt traditional management model of vertical integration, they are unable to respond quickly to the market changes. It will endanger enterprise survival. More and more enterprises turn to horizontal integration model and achieve competitive advantage through building supply chain with others. Because the cost management methods is getting better , enterprises can not achieve the goal of the cost management only through internal cost control. The new cost control method needs looking for outside enterprise. Cost management in supply chain has been concerned in such an environment.Supply chain is composed by several enterprises. There are multi-level principal-agent relationships in supply chain. Each enterprise is an independent economic entity and pursues the maximum benefit with its own professional skills. So there are interest conflicts and information asymmetries between enterprises, which will lead to the principal-agent problem and the increasing of the supply cost.Cost management in supply chain is a inter-organizational cost management,all of the cost in supply chain should be analyzed. But traditional cost method puts the focus on the enterprise interior, and it is not suitable for cost management in supply chain. It is necessary to make further study on cost management in supply chain.The article introduced principal-agent relationship into cost management in supply chain and analyzed the principal-agent relationship in supply chain and the principal-agent problem because of interest conflicts and information asymmetries. And proposed solutions to principal-agent problems. Then the article has created a framework of cost management based on principal-agent management, which included the guarantee mechanism and the method of the cost management. This article established a protection mechanism about trust and information sharing. Naturally, as the guarantee mechanism, trust and information sharing should be included too. Finally, the article thought the target cost management based on activity is suitable for cost management in supply chain.