Supply chain coordination with different objectives

Abstract

In a typical supply chain, each party tries to optimize his/her own objective that causes the poor total supply chain performance. By contracting on a set of transfer payments, each firm’s objectives become aligned with the supply chain’s objective, which is called coordination; hence the optimal result for the supply chain can be achieved. In the literature, common treatment to supply chain coordination for the newsboy problem is to analyze the system under the assumption that the objectives’ of the parties are expected profit maximization, however the real life observations show that this might not be the case. Hence, this assumption is relaxed and the supply chain coordination is studied when the objectives’ of the parties are different than the expected profit maximization, which are probability maximization of reaching a target profit, expected return on investment maximization and the probability maximization of reaching a target return on investment under the wholesale price, buy back and the revenue sharing contracts. This thesis reveals that under the assumption of compliance, the coordination is possible for some contract types and the objectives if some conditions are satisfied, however some contracts cannot coordinate the channel for some objectives no matter what the conditions are.