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 solelytowards individual optimization. Incentives which ensure that allparties benefit from coordination can be set through contractscontaining parameters of transfer payments. From research on SCcoordination in many decision fields we know that a simple wholesaleprice (WP) contract will not coordinate due to the so-called doublemarginalization effect (see {[}1]). However, considering a SC exposed toyield randomness at the supplier side, it can be shown that also for theWP contract coordination property might be given depending on thespecific SC environment. This aspect will be analyzed in detail.