The Value of Contract Flexibility on Supply Chain Coordination with Alternative Criteria

Abstract

Coordination issue becomes one of the main concerns of research on supply chains. The supply chain model is established involving a retailer with two alternative decision-making criteria: expected profit maximization and probability maximization of target profit. The interactive dynamics under two contracts: wholesale pricing and two-part tariff pricing, is characterized such that the equilibrium solutions are derived. Combined with numerical examples, the value of contract flexibility is investigated upon supply chain coordination and how it changes with decision-making criteria is considered. The results indicate that contract flexibility is one of accesses to coordinating strategies. However, the value is not identical that the difficulty is higher with probability of target profit case.