Cost Sharing Contract Design in A Two-Stage Agri-Product Supply Chain Considering Quality Control Cost and External Failure Cost

Abstract

This paper studies a two-stage agri-product supply chain with one farmer and one supermarket. The farmer decides on the quality control level of the production, and the supermarket determines the inspection degree when the agri-product is delivered from the farmer to the supermarket. Firstly, the supply chain in the centralized condition is considered and the optimal level of quality control and degree of inspection are identified. Secondly, chain profit in the decentralized condition is optimized and two kinds of cost sharing contract are developed in two cases. External failure cost is shared in the first case, while both quality control cost and external failure cost are shared in the second case. Finally, the threshold of the cost sharing proportion, quality control level and inspection degree are proposed in different cost sharing situations to coordinate the supply chain. Our key contribution is modeling cost sharing contract and analyzing its impact on agri-product supply chain. The purpose is to improve the quality of agri-products and promote the development of agri-product supply chain.