Inventory Cost Share for Supply Chain Coordination by Means of Contracts

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Author(s): Alejandra Gomez-Padilla (Center of Exact Sciences and Engineering, University of Guadalajara, Mexico)
Copyright: 2012
Pages: 18
Source title: Customer-Oriented Global Supply Chains: Concepts for Effective Management
Source Author(s)/Editor(s): Ephrem Eyob (Virginia State University, USA)and Edem G. Tetteh (Virginia State University, USA)
DOI: 10.4018/978-1-4666-0246-5.ch016

Keywords: Business & Management / Business Science Reference / Global Business / Supply Chain Management

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Abstract

This chapter highlights the importance of contracts for coordination between companies in a supply chain. It considers a dyadic situation, with a supplier and a retailer. Coordination is achieved by two types of decisions: economic (concerning prices established and stated over a contract), and physical exchange of products (concerning the inventory that is going to be held by the retailer). First one contract with a simple pricing scheme is considered, and then two contracts with inventory holding cost shared among the companies of the supply chain. The former is presented to explain the general situation and the two last ones to explain different schemes of inventory cost share. A numerical example is also shown. The objective is to illustrate that a supply chain may be efficiently coordinated if the companies establish contracts with inventory holding cost share.

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Inventory Cost Share for Supply Chain Coordination by Means of Contracts

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