Traditionally, purchasing has been considered less important than any other activities of firm, especially in Korea. But nowadays strategic purchasing is one of the source of value creation and competitive advantage.
The strategic purchasing is represented by the JIT purchasing. Ideally, the JIT purchasing aims at single source but, in fact, has multiple sources. The reason that can't be realized single source is the opportunistic behavior of suppliers. So this research illusrates how a buyer can prevent such actions effectively by the incentive scheme. And it is focused at supplier's cost performance because opportunistic behavior is frequently discovered at the truth telling of supplier's cost performance.
The major findings of this research are summarized as follows. First, the optimal incentive level is determined by supplier's total cost charged when the opportunistic behavior is detected, and the probability of detection, and the effect of investment. Second, if the co-operation between the buyer and the supplier is possible, the outcome is better than under the competition. It means that there is an incentive to co-operate to each other. Third, even if the buyer classifies its suppliers and offers specific incentives, the result is similar to the case that offers the optimal incentive to the suppliers individually. It will give a lot of convenience to the buyer for managing its suppliers. Forth, through the case study, it is found that to decision and to offer the optimal incentive level is a part of effective purchasing. To choose a relevant rule and to let the supplier know the rule is the course to decide the optimal incentive level. But for purchasing effectively like that, a support of the top management and a communication channel with supplier is definitely needed.
