Overview and classification of coordination contracts within forward and reverse supply chains

Among coordination mechanisms, contracts are valuable tools used in both theory and practice to coordinate various supply chains. The focus of this paper is to present an overview of contracts and a classification of coordination contracts and contracting literature in the form of classification schemes. The two criteria used for contract classification, as resulted from contracting literature, are transfer payment contractual incentives and inventory risk sharing. The overview classification of the existing literature has as criteria the level of detail used in designing the coordination models with applicability on the forward and reverse supply chains.Coordination contracts; forward supply chain; reverse supply chain

How can we improve the performance of supply chain contracts? An experimental Study

Although optimal forms of supply chain contracts have been widely studied in the literature, it has also been observed that decision makers fail to make optimal decisions in these contract setups. In this research, we propose different approaches to improve the performance of supply chain contracts in practice. We consider revenue sharing and buyback contracts between a rational supplier and a retailer who, unlike the supplier, is susceptible to decision errors. We propose five approaches to improve the retailer’s decisions which are in response to contract terms offered by the supplier. Through laboratory experiments, we examine the effectiveness of each approach. Among the proposed approaches, we observe that offering free items can bring the retailer’s effective order quantity close to the optimal level. We also observe that the retailer’s learning trend can be improved by providing him with collective feedbacks on the profits associated with his decisions

Effective contracts in supply chains

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, Operations Research Center, 2007.Includes bibliographical references (p. 115-121).In the past decade, we have seen significant increase in the level of outsourcing in many industries. This increase in the level of outsourcing increases the importance of implementing effective contracts in supply chains. In this thesis, we study several issues in supply chain contracts. In the first part of the thesis, we study the impact of effort in a supply chain with multiple retailers. The costly effort engaged by a retailer may increase or decrease the demands of other retailers. However, effort is usually not verifiable and hence not contractible. Based on the impact of a retailer's effort on its own and other retailers' revenue, we classify each retailer into different categories. According to the corresponding categories of all retailers, we identify coordinating contracts and general classes of contracts that cannot coordinate. Second, we study the stability of coordinating contracts in supply chains. We illustrate that, due to competition, not all coordinating contracts are achievable. Thus, we introduce the notion of rational contracts, which reflects the agents "bargaining power". We propose a general framework for coordinating and rational contracts. Using this framework, we analyze two supply chains, a supply chain with multiple suppliers and single retailer, and a supply chain with a single supplier and price-competing retailers.(cont.) We identify coordinating contracts for each case and characterize the bounds on profit shares for the agents in any rational contracts. Finally, we study the robustness of coordinating contracts to renegotiation. Applying the concept of contract equilibrium, we show that many coordinating contracts are not robust to bilateral renegotiation if the relationship between the supplier and the retailers is a one-shot game. If the supplier and retailers engage in long-term relationship, then many coordinating contracts are robust to bilateral renegotiation. We also extend concept of contract equilibrium to the concept of strong contract equilibrium to study the robustness of contracts to multilateral renegotiation. We show that, in repeated game setting, the concept of strong contract equilibrium is related to the concept of rational contracts.by Wanhang (Stephen) Shum.Ph.D

Three-Level Supply Chain Coordination under Disruptions Based on Revenue-Sharing Contract with Price Dependent Demand

Considering the market demand is stochastic and dependent on price, this paper shows that the revenue-sharing contract could coordinate a three-level supply chain consisting of one manufacturer, one distributor, and one retailer under normal environment. However, the original revenue-sharing contract cannot coordinate the supply chain under disruptions in circumstances of certain incidents leading to significant changes in market demand and causing additional deviation costs. To solve the problem, this essay introduces two improved forms of revenue-sharing contract: a mixed contract form based on a quantity discount policy and a pure form, which are characterized by antidisruption ability. The model of improved revenue-sharing contract is optimized when the market demand is in the additive form or in the multiplicative form with price dependent demand. Formulas are given to calculate the optimal contract parameters. Finally, this essay demonstrates the accuracy of the model of improved revenue-sharing contract with the help of numerical examples

Supply chain contracting coordination for fresh products with fresh-keeping effort

Purpose – Fresh product loss rates in supply chain operations are particularly high due to the nature of perishable products. This paper aims to maximize profit through the contract between retailer and supplier. The optimized prices for the retailer and the supplier, taking the fresh-keeping effort into consideration, are derived. Design/methodology/approach – To address this issue, we consider a two-echelon supply chain consisting of a retailer and a supplier (i.e., wholesaler) for two scenarios: centralized and decentralized decision-making. We start from investigating the optimal decision in the centralized supply chain and then comparing the results with those of the decentralized decision. Meanwhile, a fresh-keeping cost-sharing contract and a fresh-keeping cost- and revenue-sharing contract are designed. Numerical examples are provided, and managerial insights are discussed at end. Findings – The results show that (a) the centralized decision is more profitable than the decentralized decision; (b) a fresh product supply chain can only be coordinated through a fresh-keeping cost- and revenue-sharing contract; (c) the optimal retail price, wholesale price and fresh-keeping effort can all be achieved; (d) the profit of a fresh product supply chain is positively related to consumers’ sensitivity to freshness and negatively correlated with their sensitivity to price. Originality/value – Few studies have considered fresh-keeping effort as a decision variable in the modelling of supply chain. In this paper, a mathematical model for the fresh-keeping effort and for price decisions in a supply chain is developed. In particular, fresh-keeping cost sharing contract and revenue-sharing contract are examined simultaneously in the study of the supply chain coordination problem

Coordinating a Supply Chain with Risk-Averse Agents under Demand and Consumer Returns Uncertainty

This paper examines the optimal order decision in a supply chain when it faces uncertain demand and uncertain consumer returns. We build consumer returns model with decision-makers’ risk preference under mean-variance objective framework and discuss supply chain coordination problem under wholesale-price-only policy and the manufacturer’s buyback policy, respectively. We find that, with wholesale price policy, the supply chain cannot be coordinated whether the supply chain agents are risk-neutral or risk-averse. However, with buyback policy, the supply chain can be coordinated and the profit of the supply chain can be arbitrarily allocated between the manufacturer and the retailer. Through numerical examples, we illustrate the impact of stochastic consumer returns and the supply chain agents’ risk attitude on the optimal order decision

Decision-making experiments on dual sales channel coordination

In this thesis, we conduct an experimental study with human decision makers, on dual sales channel coordination. We aim to determine dual channel strategies for a manufacturer who sells its product thorough both an independent retailer channel and its totally owned direct online channel. The two channels compete on service, where the service level of the retailer channel is measured with its product availability level, and the service level of the direct channel is measured with its delivery lead time. This multi-stage game-theoretical model was previously solved for the wholesale price contract (Chen et al. 2008) and buyback contract (Gökduman and Kaya 2009) cases. We compare these models' theoretical predictions with the outcome of our experiments with human decision makers. In particular, we analyze the theoretical and observed coordination performance of the wholesale price and buyback contracts between the two firms. We identify deviations from theoretical predictions that can be attributed to behavioral factors, such as risk aversion

A Price-sensitive Quantity-flexible Supply Chain Contract Model As A Supply Chain Performance Driver

Tez (Doktora) -- İstanbul Teknik Üniversitesi, Fen Bilimleri Enstitüsü, 2006Thesis (PhD) -- İstanbul Technical University, Institute of Science and Technology, 2006Tedarik zinciri bir ürünün tasarım aşamasından tüketicinin eline ulaşıncaya kadar geçireceği ve gerekli olan tüm aşamaları kapsar. Bu çalışmamızda tedarik zinciri sözleşmelerinin bir performans geliştiricisi olarak tedarik zinciri katma değerini en üst düzeye çıkartmada nasıl kullanılabileceği araştırılmış ve iki sözleşme modeli incelenmiştir. İlk sözleşme modeli olarak, ürüne olan talebin satış fiyatı ile bağlantılı olduğu bir ortamda, üreticinin satıcıya belli bir miktarda ürün alma garantisi karşılığı önerdiği indirimler ele alınmıştır. İkinci sözleşme modeli olarak ise, üreticinin toplam tedarik zinciri katma değerini arttırmak için satıcıya önerdiği satılamayan ürünü geri alma ve satın almada miktar esnekliği sağlama sözleşmeleri incelenmiştir. Birinci modelde, görüleceği üzere, her ne kadar talep satış fiyatı ile bağlantılı ise de, sonuç yalnız satıcı açısından değerlendirildiğinden, modelin tedarik zinciri toplam katma değeri üzerindeki etkisi belirsizdir. Diğer yandan, ikinci model tedarik zincirinin toplam katma değerini arttırdığı halde, talebin fiyat duyarlılığı göz önüne alınmamıştır. Çalışmamızda geliştirdiğimiz ve bilgisayar programları kullanarak (Appendix B) çalıştırdığımız modelin özgün yanı, yukarıdaki iki modelin zayıf noktalarına cevap vermesi ve talebin fiyata duyarlı olduğu bir ortamda üretici-satıcı arasında miktar esnekliği sağlayan bir sözleşmenin tedarik zinciri katma değerini en üst düzeye çıkarmasıdır. Çalışmamızda ayrıca sözleşmeden kaynaklanan bu ek katma değer artışının her iki tarafın da kazanması için nasıl paylaştırılabileceğini öneren iki yöntem geliştirilmiştir.A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. In this dissertation, we introduced supply chain contracts as a new driver to maximize supply chain profitability. We presented two supply chain contract models. First, where a retailer facing price sensitive demand may obtain a discount by committing a fixed quantity over a finite horizon, and second where a manufacturer offering buyback or quantity flexibility contracts may increase the total supply chain profit. We concluded that the first model incorporates demand as a function of the selling price but does not address the crucial issue of total supply chain surplus maximization. On the other hand, the second model, although it increases the total supply chain surplus, does not incorporate the demand elasticity. We then developed a model to address the individual weaknesses of the models discussed by incorporating the price sensitive demand into quantity flexibility contracts by determining the optimal level of product availability, as a function of the selling price, which maximizes the total supply chain profit. We also proposed two solutions to the issue of profit sharing related to the distribution of the additional supply chain profit generated by using the contracts. Furthermore, through numerical experiments using computer programs (Appendix B), we showed that our model maximizes total supply chain surplus by incorporating demand elasticity and profit sharing into quantity flexibility contracts.DoktoraPh