Abstract
The objective of this document is to compare the performance of the companies forming a dyadic supply chain, and for the chain as a single unit, under two types of contracts: option and rebate. The performance is measured in economic terms (benefits and costs) and in physical units (inventory held and unsatisfied demand). The results will help to identify which is the better contract for a given set of parameters. Under an option contract, the retailer orders a quantity of units and has a right to modify his order (increase or decrease) by buying the option premium in advance from the supplier. Under a rebate contract, the supplier offers a rebate for the units ordered over a certain number of units previously fixed. With an option contract, the retailer reserves a number of units from the supplier and, after receiving more information about demand, he will pass his final order. With a rebate contract, the retailer will decide from the beginning the number of units to order knowing the rebate condition (price and quantity). First the theoretical bases are introduced for each contract, next both models are compared by simulation. The simulation plan is presented and the results are discussed.
Highlights
Chains need coordination to afford the sources of variation and uncertainty
Comparing the benefit for the chain, the rebate contract is more interesting for the chain than an option contract
From literature review it is possible to highlight the importance of contracts for coordination and that rebate and option contracts have been studied from different points of view and under different conditions
Summary
Chains need coordination to afford the sources of variation and uncertainty. Cooperation improves the results for the companies (Liu and Wang, 2007). This work focus on the study of two types of contracts in a supply chain: rebate and option. In has been found that the rebate contract may coordinate a supply chain for specific situations: when the rebate is sales – based (Taylor, 2002), when combined with return policies (Zhang et al, 2005) and (Lu et al, 2007). None of these situations are considered in this document, so the rebate contract will not coordinate the chain. The motivation of this research was to compare the performance of two contracts: one that will not coordinate but is simple (rebate) and one that may coordinate but implies cooperation to decide the value of the parameters
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