Abstract
New product development has been serving as a growth engine for companies; given this background, the innovation of suppliers that possess new technologies for new products has been a significant subject for manufacturers, particularly in high-tech industries. However, the technology uncertainty associated with the supplier’s development capability may become a considerable obstacle to new product development projects. In this paper, we further develop an analytical model that has been widely applied in the economics literature and examine two representative supply chain contracts, a revenue-sharing contract and a cost-sharing contract, for new product development through upstream innovation under technology uncertainty. We confirm that the supplier’s development capability has a significant impact on contract feasibility. The revenue-sharing contract helps to attain a higher new product quality level and profit for the supply chain. Furthermore, we explore the relationship between a manufacturer and a supplier concerning the performance of the new product development project. Adopting a Nash bargaining model, we analyze the two supply chain contracts under a cooperative relationship in which the manufacturer and supplier cooperatively determine the sharing portion of the revenue or cost. For both contracts, compared with the unilateral relationship, the cooperative relationship leads to a lower manufacturer profit, but a higher new product quality and a higher supply chain profit.
Highlights
Given that consumers’ desires and tastes continue to change, new product development is serving as a growth engine for companies and is an essential strategy for sustainable growth
This paper analyzed two broadly used contract types, the revenue- and cost-sharing contracts, in a supply chain consisting of a manufacturer and a supplier, considering development time uncertainty based on the supplier’s development capability
In a situation in which the manufacturer considers two contracts to encourage the supplier to invest in a new product development, we analyze the impact of the supplier’s development capability on supply chain decisions
Summary
Given that consumers’ desires and tastes continue to change, new product development is serving as a growth engine for companies and is an essential strategy for sustainable growth. Apple receives Gorilla Glass, a type of scratch-resistant glass, from Corning to produce digital devices and sell them to consumers This suggests that innovation from suppliers, such as Corning, is vital in the supply chain of manufacturers, such as Apple, to develop new products. We further develop an analytical model that has been widely applied in the economics literature and analyze two types of contracts between a manufacturer and a supplier within a supply chain under the condition of technology uncertainty associated with the supplier’s development capability. By understanding the impacts of the uncertainty stemming from the suppliers’ development capabilities and the relationship with them, we expect manufacturers to be able to implement supply chain contracts more effectively and achieve successful new product development.
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