A Coordinated Supply Contract for a Two-Echelon Supply Chain Considering Learning Effects

Abstract

In a supply chain composed of multiple members, supply chain coordination plays a crucial role in achieving overall optimization and efficiency. Various supply contract forms have been studied in the existing literature to facilitate supply chain coordination. However, most existing literature has established coordination models assuming constant production costs. In reality, per-unit production costs often decrease as production quantity increases, which is called the learning effect. This paper underscores the significance of considering this learning effect in decision-making processes for coordinated supply contracts. We propose a supply contract scheme for channel coordination that incorporates the learning effect within a supply chain comprising a single manufacturer and a single retailer. In this framework, the manufacturer acts as a Stackelberg leader, initiating the process by designing and presenting the contract. The supply contract scheme is designed to ensure that the retailer’s order quantity aligns with the global solution. We also demonstrate how the contract parameters are determined when the relative bargaining powers of the supply chain members are given exogenously in the market. Our findings reveal that contracts with a learning curve can generate additional profits for both the manufacturer and the retailer compared to the existing coordinated contracts with static production costs. This study provides valuable insights into the impact of the learning effect on supply chain efficiency and offers practical implications for supply chain practitioners.