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Transshipment incentive contracts in a multi-level supply chain

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  • Dong, Yan
  • Xu, Kefeng
  • Evers, Philip T.
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    Abstract

    Transshipments within a supply chain can be difficult to implement as the costs and benefits are often incurred by different parties. This difficulty becomes even more problematic when the costs and benefits are not completely known by all parties. The primary purpose of this paper is to introduce the role of asymmetric information into the design of supply chain transshipment contracts. Using a representative supply chain from within the soft drink industry as an example, a multi-level contracting framework is developed that aligns incentives to encourage transshipments and improve performance in the absence of all parties having full information. Analysis of the proposed framework suggests that, even if a transshipment is likely to be unprofitable to the transshipping dyad, it may still be best for the entire supply chain. Moreover, overall supply chain inventories with transshipments do not necessarily increase relative to the no-transshipment case.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 223 (2012)
    Issue (Month): 2 ()
    Pages: 430-440

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    Handle: RePEc:eee:ejores:v:223:y:2012:i:2:p:430-440

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Transshipments; Asymmetric information; Incentive contracts; Supply chain management;

    References

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    Cited by:
    1. Tsai, Shing Chih & Zheng, Ya-Xin, 2013. "A simulation optimization approach for a two-echelon inventory system with service level constraints," European Journal of Operational Research, Elsevier, vol. 229(2), pages 364-374.

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