On capacity reservation contract in semiconductor supply chain

This paper investigates capacity reservation and capacity preparation issue in the semiconductor industry under stochastic demand. By comparing the manufacturer's optimal production capacity preparation in vertical integrated and decentralised supply chains, it shows that the manufacturer's production capacity preparation and the market satisfaction rate of the decentralised supply chain are lower. We propose a deductible reservation (DR) contract where the retailer reserves production capacity with a fee that can be deductible from the wholesale price. In the DR contract model, channel coordination and profit split are achieved respectively by setting expanded production capacity and unit reservation fee. The DR contract provides a risk-pooling mechanism not only motivates the manufacturer to expand production capacity but also preserves the retailer's flexibility.