Push and pull contracts in a supply chain selling two products with different lead times

Abstract

PurposePrevious researchers have studied push and pull contracts in the single product scenario, although in practice, supply chains often produce and sell multiple products. In a multiproduct scenario, the sales of a product will be influenced by its complements or substitutes, which requires consideration when the supply chain members negotiate contracts. This paper aims to fill this gap by studying push and pull contracts in a supply chain which distributes two products to a market and discusses how the degree of complementarity/substitutability between the two products affects the supplier’s decisions and supply chain efficiency.Design/methodology/approachThe paper uses the model of a single-supplier, single-retailer supply chain which sells a product with a long lead time and another product with a short lead time simultaneously in a market. This research compares the production quantity and supply chain efficiency under a push contract with those under a pull contract.FindingsFirst, when the two products are complements, the equilibrium production quantity of Product 2 is higher under a pull contract than that under a push contract. Second, a pull contract is found to be optimal for both the supplier’s profit and supply chain efficiency when the two products are complements, while if they are substitutes, then a push contract is the better choice in some situations.Originality/valueThe existing literature discusses push and pull contracts in the single product scenario. The current paper pays attention to the two-product scenario and investigates how the complementarity/substitutability degree between the two products affects the supplier’s decisions and supply chain efficiency.