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Designing multi-period supply contracts in a two-echelon supply chain with asymmetric information

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  • Mobini, Zahra
  • van den Heuvel, Wilco
  • Wagelmans, Albert

Abstract

We study a two-echelon supply chain consisting of a supplier and a retailer, where the supplier uses a simple and easily implementable incentive scheme of making a side payment to influence the retailer’s ordering plan. The supplier makes a take-it-or-leave-it offer to the retailer in the form of a menu of contracts, each consisting of a procurement plan plus a side payment. The retailer, who possesses private information about customer demand and his cost parameters, either accepts one of the contracts or imposes his own optimal plan. We formulate the supplier’s problem of designing optimal contracts with the assumption that the retailer’s outside option depends on his private information. Taking into account the retailer’s reaction to the proposed offer, the supplier faces a nested (bi-level) optimization problem, which we transform into a single-level mixed integer programming variant. In our analysis, we use a network interpretation for the set of incentive constraints and show several structural properties of optimal contracts. This enables us to considerably reduce the set of incentive constraints and to find optimal values of side payments. Our findings regarding the possible behavior of the opportunistic retailer deviate from those of previous studies as a result of considering more realistic assumptions.

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  • Mobini, Zahra & van den Heuvel, Wilco & Wagelmans, Albert, 2019. "Designing multi-period supply contracts in a two-echelon supply chain with asymmetric information," European Journal of Operational Research, Elsevier, vol. 277(2), pages 542-560.
    • Handle: RePEc:eee:ejores:v:277:y:2019:i:2:p:542-560
    DOI: 10.1016/j.ejor.2019.03.002
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    2. Sahani Rathnasiri & Pritee Ray & Carlos A. Vega-Mejía & Sardar M. N. Islam & Nripendra P. Rana & Yogesh K. Dwivedi, 2022. "Optimising small-scale electronic commerce supply chain operations: a dynamic cost-sharing contract approach," Annals of Operations Research, Springer, vol. 318(1), pages 453-499, November.
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    4. Ruijuan Zhao & Yihan Guo & Xiaolin Chu, 2022. "Manufacturer’s Incentive Strategies in a Dual-Channel Supply Chain with Moral Hazard: A Long-Term Perspective," Sustainability, MDPI, vol. 14(22), pages 1-21, November.
    5. Qi Wang & Kebing Chen & Shengbin Wang & Xiaogang Cao, 2022. "Optimal decisions in a closed-loop supply chain: fairness concerns, corporate social responsibility and information value," Annals of Operations Research, Springer, vol. 309(1), pages 277-304, February.
    6. Kerkkamp, R.B.O. & van den Heuvel, W. & Wagelmans, A.P.M., 2019. "Two-echelon lot-sizing with asymmetric information and continuous type space," Omega, Elsevier, vol. 87(C), pages 158-176.
    7. Choi, Tsan-Ming & Guo, Shu, 2020. "Is a ‘free lunch’ a good lunch? The performance of zero wholesale price-based supply-chain contracts," European Journal of Operational Research, Elsevier, vol. 285(1), pages 237-246.
    8. Zhou, Jianheng & Luo, Yao, 2023. "Bayes information updating and multiperiod supply chain screening," International Journal of Production Economics, Elsevier, vol. 256(C).
    9. Sarkar, Mitali & Dey, Bikash Koli & Ganguly, Baishakhi & Saxena, Neha & Yadav, Dharmendra & Sarkar, Biswajit, 2023. "The impact of information sharing and bullwhip effects on improving consumer services in dual-channel retailing," Journal of Retailing and Consumer Services, Elsevier, vol. 73(C).
    10. Xia, Jing & Niu, Wenju, 2021. "Carbon-reducing contract design for a supply chain with environmental responsibility under asymmetric information," Omega, Elsevier, vol. 102(C).

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