Contracts and coordination: Supply chains with uncertain demand and supply

Yong He and Xuan Zhao

Naval Research Logistics (NRL), 2016, vol. 63, issue 4, 305-319

Abstract: Considering a supply chain with a supplier subject to yield uncertainty selling to a retailer facing stochastic demand, we find that commonly studied classical coordination contracts fail to coordinate both the supplier's production and the retailer's procurement decisions and achieve efficient performance. First, we study the vendor managed inventory (VMI) partnership. We find that a consignment VMI partnership coupled with a production cost subsidy achieves perfect coordination and a win‐win outcome; it is simple to implement and arbitrarily allocates total channel profit. The production cost subsidy optimally chosen through Nash bargaining analysis depends on the bargaining power of the supplier and the retailer. Further, motivated by the practice that sometimes the retailer and the supplier can arrange a “late order,” we also analyze the behavior of an advance‐purchase discount (APD) contract. We find that an APD with a revenue sharing contract can efficiently coordinate the supply chain as well as achieve flexible profit allocation. Finally, we explore which coordination contract works better for the supplier vs. the retailer. It is interesting to observe that Nash bargaining solutions for the two coordination contracts are equivalent. We further provide recommendations on the applications of these contracts. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 63: 305–319, 2016

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://doi.org/10.1002/nav.21695

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:63:y:2016:i:4:p:305-319

Access Statistics for this article

More articles in Naval Research Logistics (NRL) from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().