Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers

This paper addresses the supply contracts within a decentralized supply chain comprising an upstream component supplier and a downstream manufacturer. With the need to invest in production capacity before the sales season, suppliers often make conservative capacity decisions due to uncertain demand,...

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Bibliographic Details
Published in:Sustainability 2023-09, Vol.15 (17), p.13005
Main Authors: Jung, Sung-Moon, Koh, Shie-Gheun, Kim, Young-Jin, Koo, Pyung-Hoi
Format: Article
Language:English
Subjects:
Bargaining
Decision making
Efficiency
Energy consumption
Literature reviews
Logistics
OEM
Order quantity
Production capacity
Revenue sharing
Social exclusion
Suppliers
Supply chains
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Summary:This paper addresses the supply contracts within a decentralized supply chain comprising an upstream component supplier and a downstream manufacturer. With the need to invest in production capacity before the sales season, suppliers often make conservative capacity decisions due to uncertain demand, which gives rise to the double marginalization problem. The distribution of supply chain profits is typically determined based on each member’s relative bargaining power, often exogenously provided in the market. While numerous studies have been conducted to design supply contracts for coordination in decentralized supply chains, most of them overlook the supplier’s capacity constraints and the existing bargaining power structure. To bridge this gap, this study proposes a supply contract scheme that achieves coordination under any given bargaining power structure. The key finding of this paper is that two contract types, namely capacity cost-sharing (CCS) and surplus capacity compensation (SCC), can address the entire spectrum of bargaining powers. This study demonstrates how to identify a specific threshold for a given bargaining power structure, from which the appropriate contract type is selected. Through numerical illustrations, we present how to select coordinated contracts for different bargaining power structures and examine the influence of contract parameters on the profit of each supply chain member. The primary contribution is that this study provides actionable insights for practitioners to effectively implement coordinated contracts by presenting a straightforward and practical methodology.
ISSN:2071-1050
2071-1050
DOI:10.3390/su151713005