Coordination by quantity flexibility contract in a two-echelon supply chain system: Effect of outsourcing decisions

Jafar Heydari, Kannan Govindan*, Hamid Reza Ebrahimi Nasab, Ata Allah Taleizadeh

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper investigates a two-echelon supply chain (SC) with one product and two members, including one manufacturer and one retailer under stochastic demand. A quantity flexibility (QF) contract is applied where the retailer is allowed to update its primary order both downwards and upwards to share overstocking and overproduction risks between both channel members. In the proposed QF model, it is possible for the manufacturer to outsource production based on a reservation fee. The manufacturer's decision variable is in-house/outsource amount while the retailer decides on order quantity. Numerical experiments and sensitivity analyses have been implemented on the contract parameters. The results indicate that outsourcing a fraction of production not only increases the profit of the supply chain but can also increase each member's profit.

Original languageEnglish
Article number107586
JournalInternational Journal of Production Economics
ISSN0925-5273
DOIs
Publication statusAccepted/In press - 1. Jan 2020

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Keywords

  • Outsourcing
  • Quantity flexibility contract
  • Stochastic demand
  • Supply chain coordination

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