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Profit Allocation, Decision Sequence and Compliance Aspects of Coordinating Contracts: A Retrospect

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  • Meng Lu
  • Suresh Sethi
  • Yangyang Xie
  • Houmin Yan

Abstract

Coordinating contracts have been extensively researched in supply chain management. In this retrospect, we systematically review the profit allocation, decision sequence, and compliance aspects of these contracts. In addition to the existing concepts in the literature, we propose the notion of sample‐path flexibility in profit allocation. Based on precise mathematical definitions, we develop structural properties and characterize sufficient conditions for flexibility in profit allocation, sequence independence, and voluntary compliance. We also obtain sufficient conditions for coordinating supply chains involving fairness‐preferred or downside‐risk‐averse agents with sample‐path flexible and voluntary compliant contracts. We reveal that sample‐path flexible contracts must have a transaction after uncertainty is realized and that transactions both before and after uncertainty realization adds to their flexibility. With the properties and conditions in hand, we develop a 3 × 3 matrix framework of the coordination aspects within which several well‐studied supply chain contracts can be systematically classified. Furthermore, we provide the steps to design coordinating contracts with sample‐path flexibility and voluntary compliance, along with examples. Our results help in the design, evaluation, and implementation of supply chain coordinating contracts.

Suggested Citation

  • Meng Lu & Suresh Sethi & Yangyang Xie & Houmin Yan, 2019. "Profit Allocation, Decision Sequence and Compliance Aspects of Coordinating Contracts: A Retrospect," Production and Operations Management, Production and Operations Management Society, vol. 28(5), pages 1222-1237, May.
    • Handle: RePEc:bla:popmgt:v:28:y:2019:i:5:p:1222-1237
    DOI: 10.1111/poms.12982
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    Cited by:

    1. Juzhi Zhang & Suresh P. Sethi & Tsan‐Ming Choi & T.C.E. Cheng, 2022. "Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2557-2570, June.
    2. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    3. Tarun Jain & Jishnu Hazra & T. C. E. Cheng, 2023. "Analysis of upstream pricing regulation and contract structure in an agriculture supply chain," Annals of Operations Research, Springer, vol. 320(1), pages 85-122, January.
    4. Chernonog, Tatyana & Levy, Priel, 2023. "Co-creation of mobile app quality in a two-platform supply chain when platforms are asymmetric," European Journal of Operational Research, Elsevier, vol. 308(1), pages 183-200.
    5. Xie, Yangyang & Liang, Xiaoying & Ma, Lijun & Yan, Houmin, 2017. "Empty container management and coordination in intermodal transport," European Journal of Operational Research, Elsevier, vol. 257(1), pages 223-232.
    6. Xiao Hu & Kaifang Fu & Zhixiang Chen & Zhijiao Du, 2022. "Decision-Making of Transnational Supply Chain Considering Tariff and Third-Party Logistics Service," Mathematics, MDPI, vol. 10(5), pages 1-20, February.

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