How can we improve the performance of supply chain contracts? An experimental study

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Although optimal forms of supply chain contracts have been widely studied in the literature, it has also been observed that decision makers fail to make optimal decisions in these contract setups. In this research, we propose different approaches to improve the performance of supply chain contracts in practice. We consider revenue sharing and buyback contracts between a rational supplier and a retailer who, unlike the supplier, is susceptible to decision errors. We propose five approaches to improve the retailer’s decisions which are in response to contract terms offered by the supplier. Through laboratory experiments, we examine the effectiveness of each approach. Among the proposed approaches, we observe that offering free items can bring the retailer’s effective order quantity close to the optimal level. We also observe that the retailer’s learning trend can be improved by providing him with collective feedbacks on the profits associated with his decisions. ► We propose five approaches to improve order quantity decisions in supply chain contracts. ► We show the coordinating form of revenue sharing contracts designed for a risk-averse retailer. ► We show coordinating forms of supply chain contracts when free items offered by the supplier. ► We examine the effectiveness of each proposed approach through laboratory experiments. ► Offering free items and providing collective feedback can improve the performance of contracts.