Understanding the concept of elasticity in supply chain relationships : an agency theory perspective

The issue of flexibility in supply chains has been receiving heightened attention by scholars and practitioners especially as business environment becoming more turbulent and uncertain. Notwithstanding, one of the important aspects of flexibility – relationship flexibility – which has the potential to proliferate responsiveness and postpone bifurcation in buyer -supplier relationships has not been well understood and researched. Identifying this gap within the literature, this paper proposes a concept of elasticity as an important element of relationship flexibility in supply chains. It is argued that the tolerance threshold of coopering parties in presence of their sudden behaviour change will determine their state of relationship elasticity (i.e. elastic or inelastic). The theoretical development of this paper has been primarily based on review of the literature and insights from agency perspective. It is proposed that relationship governance mechanisms advocated by agency theory has the potential to influence elasticity status of principal agent relationships.