Supply Chain Contract Choice with Different Behavior Preferences of Retailer

Retailer may exhibit irrationality when facing the risk of demand uncertainty; therefore, we consider four retailer behavioral preferences: risk neutral (RN), waste aversion (WA), stockout aversion (SA), and stockout-waste aversion (SW). The decision-making and contract choice of upstream and downstream enterprises in cases where demand depends on supplier’s effort are studied. The results show that if the retailer has only SA or RN preferences, then the supplier prefers to choose a wholesale price contract, while the retailer does the opposite, if the retailer has only WA, then the supplier prefers to choose a revenue sharing contract, but the retailer’s contract choice depends on the degree of waste aversion, and if the retailer has SW, then the contract choice of upstream and downstream enterprises is related to the degree of waste aversion and stockout aversion.

The Power of Renegotiation and Monitoring in Software Outsourcing: Substitutes or Complements?

Monitoring and contract renegotiation are two common solutions for addressing information asymmetry and uncertainty between a client and a vendor of software outsourcing services. Monitoring is mostly applied in time-and-materials contracts, as a basis for inspecting and reimbursing the vendor’s efforts in system development. Renegotiation, by contrast, is deployed in fixed-price and time-and-materials contracts to mitigate the loss of surplus from uncertainty after system development. We investigate the interaction between monitoring and renegotiation and examine the corresponding contract choice problem. We find that the client benefits from renegotiation based on two effects: an uncertainty-resolution effect and a post-development incentive effect, which incentivizes the vendor to exert additional effort in system development. Monitoring does not resolve uncertainty, although it does encourage the vendor to exert additional effort, a pre-development incentive effect. Our analysis shows that the choice of renegotiation or monitoring depends on the interactions of the above effects, which are moderated by the renegotiation cost, monitoring cost, and bargaining power in renegotiation. When renegotiation cost is low: if the client has high bargaining power and low monitoring cost, monitoring and renegotiation are complements and both are selected; otherwise, the two instruments are substitutes and contract renegotiation is preferred. When renegotiation cost is high: monitoring substitutes for renegotiation and the client only chooses monitoring if the cost to do it is low; or else neither is used. Overall, this research shows that four appropriate contract strategies should be used under somewhat different circumstances. We further analyze the impacts of some other key aspects of software outsourcing and extend the base model to address two alternative situations to show the robustness of our findings. The results apply to a range of software reliability growth models, including when machine learning or cloud computing are used.

Inter-organizational contract control of advertising strategies in the supply chain

<p style='text-indent:20px;'>Advertising has a crucial impact on a product's goodwill. To further improve a product's goodwill and make more profit, member firms in the supply chain use various contracts to coordinate the channel. Considering the dynamic effect of advertising, this paper studies a two-level supply chain consisting of one manufacturer and one retailer. The two members focus on maximizing their profits through advertising and pricing strategies under two types of contracts: the wholesale price contract and the consignment contract. The Stackelberg differential game is introduced, and the optimal advertising effort, wholesale and retail pricing strategies in the two situations are studied. Numerical examples and sensitivity analyses are conducted to explore the models further. The results show that the retailer's revenue proportion and the product's goodwill according to consumers significantly affect the strategies and the contract choice of the partner firms in the supply chain. A proportion of too high or too low revenue may lead to a contract selection conflict between the two partner firms. However, when consumers care more about the product's goodwill, this contract selection conflict can be weakened.</p>

Distribution Contract Analysis on e-Platform by Considering Channel Role and Good Complementarity

Although suppliers can sell their goods on e-retailers’ e-platforms through either a wholesale or agency contract, suppliers that produce complementary goods and have different channel roles have been confused as to how to choose an optimal distribution contract. This paper aims to study this problem by considering the combined impacts of suppliers’ channel roles, e-retailer’s referral fees, goods’ differences in the level of complementarity and goods’ differences in potential demand. Our results show that, regardless of one supplier’s distribution contract choice, the other supplier always prefers agency contract, which is independent of two suppliers’ channel roles, the e-retailer’s referral fees, two goods’ differences in the level of complementarity and two goods’ differences in the potential demand. Moreover, when two suppliers use different distribution contracts to sell goods with different levels of complementarity on the same e-retailer’s e-platform, low-complementarity goods have a larger optimal retail price only if the two goods’ differences in the level of complementarity are sufficiently high, and the supplier can obtain more profits by producing low-complementarity goods regardless of the supplier’s distribution contract and channel role.

Trade Credit Insurance: Operational Value and Contract Choice

Trade credit insurance (TCI) is a risk management tool commonly used by suppliers to guarantee against payment default by credit buyers. TCI contracts can be either cancelable (the insurer has the discretion to cancel this guarantee during the insured period) or noncancelable (the terms cannot be renegotiated within the insured period). This paper identifies two roles of TCI: the (cash flow) smoothing role (smoothing the supplier’s cash flows) and the monitoring role (tracking the buyer’s continued creditworthiness after contracting, which enables the supplier to make efficient operational decisions regarding whether to ship goods to the credit buyer). We further explore which contracts better facilitate these two roles of TCI by modeling the strategic interaction between the insurer and the supplier. Noncancelable contracts rely on the deductible to implement both roles, which may result in a conflict: a high deductible inhibits the smoothing role, whereas a low deductible weakens the monitoring role. Under cancelable contracts, the insurer’s cancelation action ensures that the information acquired is reflected in the supplier’s shipping decision. Thus, the insurer has adequate incentives to perform its monitoring function without resorting to a high deductible. Despite this advantage, we find that the insurer may exercise the cancelation option too aggressively; this thereby restores a preference for noncancelable contracts, especially when the supplier’s outside option is unattractive and the insurer’s monitoring cost is low. Noncancelable contracts are also relatively more attractive when the acquired information is verifiable than when it is unverifiable. This paper was accepted by Vishal Gaur, operations management.