Abstract
This paper considers the issues of pricing, lot-sizing decisions and coordination in a supply chain consisting of one original equipment manufacturer (OEM) and one contract manufacturer (CM). A Bayesian game accounting for asymmetric information is established to optimize the CM’s outsourcing price and the OEM’s selling price. A Stackelberg game incorporating yield and demand uncertainties is subsequently modelled to optimize the CM’s production quantity and the OEM’s order quantity. Finally, a shortage penalty with surplus purchase contract is proposed to coordinate the supply chain. It is found that the optimal outsourcing price is either the lower limit or the stationary point of the common price domain, while the optimal selling price is the upper limit. Whether the CM adopts a conservative or an aggressive production strategy depends on the threshold of the outsourcing price. Moreover, the coordination contract offers great flexibility in parameter selection. By setting the order quantity, penalty price and surplus purchase price properly, the supply chain can realize a win-win situation.
Highlights
Chains are currently facing great risks downstream
We investigate the issue of the coordination of a supply chain comprising one original equipment manufacturer (OEM) and one contract manufacturer (CM)
In order to improve the total performance of the supply chain, we propose a shortage penalty with surplus purchase contract
Summary
Chains are currently facing great risks downstream. Due to rapid technological advances and fast consumer preference transitions, the demands in many industries, including electronics, automotive, fashion, and beverage, are changing more frequently than ever before. Taking advantage of the outsourcing strategy, firms can reap benefits by reducing costs, sustaining core competencies, obtaining desirable service levels, increasing flexibility and agility, and improving demand response speeds [6] The upstream agent can choose the production quantity distinguished from the order quantity to mitigate the risk of uncertain yield, and the downstream agent can allocate orders considering the supply shortage problem. We design a shortage penalty with surplus purchase contract to coordinate the supply chain under a complex situation wherein the upstream yield and downstream demand are both random.
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