Supply chain coordination under advance-purchase discount contract with sales effort and transshipment

Abstract

In today's business environment, a competition is no longer about competing between firms, but between supply chains. Improving supply chain's performance has become necessary for companies to survive. Supply chain coordination ensures a maximum performance of a supply chain. This dissertation studies impacts of an advance-purchase contract and supply chain coordination in two different supply chains.

We first consider the supply chain with the manufacturer and retailer who can exert sales effort to stipulate demand. We develop the contract that combines the advance purchase contract and the target rebate contract to coordinate the retailer's ordering and effort decisions. We analytically show that supply chain coordination is achievable, but profit splitting may not be fully flexible depending on market conditions.

We second consider the supply chain with the manufacturer and two retailers who can transship products to satisfy unmet demand as a result of an inventory shortage. We establish a new mechanism that integrates the advance-purchase contract to coordinate the supply chain. The coordination mechanism follows in two steps: it first aligns the objective of the retailer group with the objective of the supply chain, and second aligns the individual objective of each individual retailer with the joint objective of the retailer group. We analytically show that supply chain coordination and arbitrary profit split is achievable.

The coordinating contracts lead to Pareto improving situations. The numerical analyses show the performance improvement of the supply chain from the inclusion of the advance-purchase contract. We also conduct the sensitivity analyses to see the impacts of the contract terms on the retailers' optimal decisions, and the impacts of market conditions on the contracts. The potential future research directions for both studies are also discussed.