Towards the development of an intelligent supply contract design system

Abstract

Purpose

Many supply contracts are employed in practice to improve the performance of supply chains. But there is a lack of research that can offer guidance to practitioners in choosing the best supply contract among a group of popular contracts. This paper aims to fill this gap by developing an intelligent rule‐based supply contract design system for choosing the best contract and its parameters from a supplier's point of view.

Design/methodology/approach

The approach used in this paper is based on the comparison of several supply contracts that are encountered in supply chain practice. The paper aims at identifying the conditions under which one supply contract outperforms another from the supplier's perspective. To facilitate the implementation of the decision‐making rules that are developed in this research, an intelligent decision support system is developed.

Findings

Six popular contracts are analysed; returns policy (RP), quantity discount (QD), target rebate (TR), backup agreement (BA), quantity flexibility (QF), and quantity commitment (QC). The main findings are: QD contracts generate larger expected profits for the supplier than TR contracts do when the demand is exogenous, an RP contract is better than a QD contract when the wholesale profit margin is sufficiently large and that the optimal QC contract always provides a higher expected service level than BA and QF contracts.

Originality/value

The paper presents an approach for developing an intelligent supply contract design system that can offer guidance to practitioners in choosing the best supply contract for a particular supplier.

Citation

Kobbacy, K.A.H., Wang, H. and Wang, W. (2011), "Towards the development of an intelligent supply contract design system", Journal of Manufacturing Technology Management, Vol. 22 No. 6, pp. 788-803. https://doi.org/10.1108/17410381111149648