Sustainability on the Service Capacity in Elderly Healthcare Service Supply Chains: An Application of Flexible Contracts

Abstract

This article concerns the channel coordination of a two-echelon elderly healthcare service supply chain consisting of an elderly service integrator and a service provider to satisfy uncertain demand. Such channel coordination is achieved using a loss-sharing contract embedded with options, and the optimal service capacity and service sales effort are derived under a game-theoretic model. Results show that the loss-sharing contract, if used alone, cannot coordinate the supply chain effectively, and it needs to be combined with some options to achieve desired channel coordination. For the case of put option contract, the elderly service integrator will order the maximized service capacity initially. This is however, in contrast with the case of the bidirectional option contract where the integrator will order the minimized service capacity at the highest option price. Several managerial implications of the results are discussed, and some suggestions for implementation of the flexible coordination mechanisms for the government are provided.