4.6 Article

Allocational flexibility in constrained supply chains

Journal

INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS
Volume 153, Issue -, Pages 86-94

Publisher

ELSEVIER SCIENCE BV
DOI: 10.1016/j.ijpe.2014.01.014

Keywords

Capacity constraint; Allocational flexibility; Supply contracts

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We show that when a one-supplier/one-newsvendor supply chain is capacity-constrained, wholesale price contracts have some flexibility in allocating the channel-optimal profit. We analyze how this flexibility changes as we change the supply chain's capacity constraint and market demand. We also explore the allocation that is achieved in equilibrium in a newsvendor procurement game. Finally, we generalize our results to risk-sharing contracts and show that those contracts also gain additional flexibility in allocating the channel-optimal profit. (C) 2014 Published by Elsevier B.V.

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