The Effects of Wholesale Price Contracts for Supply Chain Coordination under Stochastic Yield

Abstract

Coordinating the decisions of individual businesses in a supply chain (SC) can reduce efficiency losses which occur when companies act solely towards individual optimization. Incentives which ensure that all parties benefit from coordination can be set through contracts containing parameters of transfer payments. From research on SC coordination in many decision fields we know that a simple wholesale price (WP) contract will not coordinate due to the so-called double marginal-ization effect (see [1]). However, considering a SC exposed to yield randomness at the supplier side, it can be shown that also for the WP contract coordination property might be given depending on the specific SC environment. This aspect will be analyzed in detail.