Designing Supply Contracts Considering Profit Targets and Risk

文献类型： 外文期刊

第一作者： Deng, Shiming

作者： Deng, Shiming;Yano, Candace Arai;Yano, Candace Arai

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关键词： supply contract;earnings target;risk-sharing;chance constraints

期刊名称：PRODUCTION AND OPERATIONS MANAGEMENT （ 影响因子：4.965； 五年影响因子：5.298 ）

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收录情况： SCI

摘要： Managers at all stages of a supply chain are concerned about meeting profit targets. We study contract design for a buyer-supplier supply chain, with each party maximizing expected profit subject to a chance constraint on meeting his respective profit target. We derive the optimal contract form (across all contract types) with randomized and deterministic payments. The best contract has the property that, if the chance constraints are binding, at most one party fails to satisfy his profit target for any given demand realization. This implies that least risk sharing,that is, minimizing the probability of outcomes for which both parties fail to achieve their profit targets, is optimal, contrary to the usual expectations of risk sharing. We show that an optimal contract can possess only two of the following three properties simultaneously: (i) supply chain coordination, (ii) truth-telling, and (iii) non-randomized payments. We discuss methods to mitigate the consequent implementation challenges. We also derive the optimal contract form when chance constraints are incorporated into several simpler and easier-to-implement contracts. From a numerical study, we find that an incremental returns contract (in which the marginal rebate rate depends on the return quantity) performs quite well across a relatively broad range of conditions.

分类号： C93

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