Towards dynamic contract extension in supplier development

Abstract

We consider supplier development within a supply chain consisting of a single manufacturer and a single supplier. Because investments in supplier development are usually relationship-specific, safeguard mechanisms against the hazards of partner opportunism have to be installed. Here, formal contracts are considered as the primary measure to safeguard investments. However, formal contracts entail certain risks, e.g., a lack of flexibility, particular in an ambiguous environment. We propose a receding horizon control scheme to mitigate possible contractual drawbacks while significantly enhancing the supplier development process and, thus, to increase the overall supply chain profit. Our findings are validated by a numerical case study.

Numeric Evaluation of Game-Theoretic Collaboration Modes in Supplier Development

“…To answer the mentioned questions, we expand the scenarios of [7,8] from a monopolistic setting (one manufacturer-one supplier) to a multi-manufacturer setting with two manufacturers and one supplier. Then, we consider different types of relationships between manufacturers to find out which one works efficiently.…”

Optimization of Supplier Development under Market Dynamics

“…is article builds upon the model presented in [11] and the collaboration modes offered in [13]. We use Model Predictive Control (MPC), which is capable of establishing optimal control under high dynamics [36].…”

“…See, for example, Grüne and Pannek for details about this control scheme as well, for example, applications [37]. e application of mathematical models in general and of control theory is increasing in decision-making in supply chain management [11][12][13]38]. e MPC itself is a well-established simulation strategy to deal with uncertainties in supply chains, see, e.g., [39].…”

“…Each of these projects increases the state x by one, effectively reducing the suppliers manufacturing price. Please refer to [11,13] for a more detailed derivation of this cost function. e collaboration schemes differ primarily in the order of decision-making and in the system model, which the open-loop optimization applies to simulate the effects of controls.…”

“…erefore, companies may be reluctant to engage in long-term agreements, which possibly reduce their tendency to invest in supplier development activities [9]. To establish a trade-off between the benefits of shortterm and long-term contracting, several researchers proposed the application of a receding horizon technique [10][11][12]. is approach derives a long-term plan for supplier development activities but only applies a part of it in each step.…”