On improving incentive in a supply chain: Wholesale price contract vs quantity dependent contract

Ximin Huang, Sin M. Choi, Wai K. Ching

Research output: Chapter in Book/Report/Conference proceedingConference contribution

2 Scopus citations

Abstract

In this paper, we first study the performance of a supply chain consisting of one retailer and one supplier. The supplier sets the price scheme of some goods and the retailer then decides the order level and sells the goods in the market. Specifically, a quadratic cost function is assumed here to approximate the U-shape cost curve commonly observed in industries. Two kinds of contracts offered by the supplier are investigated, namely wholesale price contract and quantity dependent contract. Wholesale price is fixed under the first contract but varies depending on order level under the second one. We show that certain wholesale price contract successfully induces the retailer to order at a level such that supply chain profit is maximized, but extra cost in implementation may occur due to supplier's disagreement on this price. Given this, we propose an efficiency measure to show to what extent the wholesale price contract helps to increase supply chain profit. For quantity dependent contract, we show that it can coordinate the supply chain and leads to a proportional division of supply chain profit. We then generalize the analysis to cover the case of multiple retailers and single supplier where similar results are also obtained.

Original languageEnglish (US)
Title of host publication40th International Conference on Computers and Industrial Engineering
Subtitle of host publicationSoft Computing Techniques for Advanced Manufacturing and Service Systems, CIE40 2010
DOIs
StatePublished - Dec 1 2010
Event40th International Conference on Computers and Industrial Engineering, CIE40 2010 - Awaji, Japan
Duration: Jul 25 2010Jul 28 2010

Publication series

Name40th International Conference on Computers and Industrial Engineering: Soft Computing Techniques for Advanced Manufacturing and Service Systems, CIE40 2010

Other

Other40th International Conference on Computers and Industrial Engineering, CIE40 2010
CountryJapan
CityAwaji
Period7/25/107/28/10

Keywords

  • Coordination
  • Game theory
  • Quantity dependent contract
  • Retailer
  • Supply chain
  • Wholesale price contract

Fingerprint Dive into the research topics of 'On improving incentive in a supply chain: Wholesale price contract vs quantity dependent contract'. Together they form a unique fingerprint.

Cite this