The Best Thinking in Business Analytics from the Decision Sciences Institute

11. Coordinating the Supply Chain Using Service-Level and Profit-Sharing Contracts

—Xun Xu, California State University, Stanislaus

Abstract

We discuss the coordination mechanism in a three-level supply chain that includes one supplier, one distributor, and two retailers, using both a service-level contract and a profit-sharing contract. Via numerical studies, we find that both the individual service-level contract and profit-sharing contract can achieve more profits for the whole supply chain. The profits can be further enhanced if both contracts are used simultaneously. The incentive of stakeholders to use a profit-sharing contract depends on various service levels. Our findings help stakeholders in the supply chain use centralized decision ...