Analysis of supply contracts from a supplier's perspective

Hexin Wang and Khairy A. H. Kobbacy Centre for Operational Research and Applied Statistics, University of Salford, Salford, M5 4WT, UK Email: w.wang{at}salford.ac.uk Received on 9 May 2006. Accepted on 22 December 2006. Incentive structure and demand uncertainty may cause supplychains to operate at a low efficiency. Therefore, many supplycontracts are employed in practice to improve the performanceof supply chains, i.e. to benefit all members involved in thechain. Supply chain contracts provide mechanisms to change theincentive structures of the supply chain members so that theirdecisions can improve the supply chain efficiency, while alsoprotect their own interests. It is important to understand theimpacts of supply contracts and their differences from a supplier'sperspective, since it is often the supplier who initiates asupply contract. This paper reports on a comprehensive analysisof supply contracts from a supplier's perspective. Six commonlyused supply contracts are analysed and the contract parametersare optimized to maximize the supplier's expected profit withconsideration to improve the retailer's profit. This case hasnot been thoroughly investigated in literature to date. Therisk-sharing mechanism and the division of the increased profitbetween the retailer and supplier for some of the contractsare also investigated in detail.