Price negotiation and coordination in outsourcing supply chain under yield and demand uncertainties

¹ School of Credit Management, Guangdong University of Finance, Guangzhou 510521, P.R. China
² School of Politics and Public Administration, South China Normal University, Guangzhou 510006, P.R. China

^* Corresponding author: chongping_chen@163.com

Received: 20 April 2021
Accepted: 14 November 2021

Abstract

This paper considers the issues of pricing, lot-sizing decisions and coordination in a supply chain consisting of one original equipment manufacturer (OEM) and one contract manufacturer (CM). A Bayesian game accounting for asymmetric information is established to optimize the CM’s outsourcing price and the OEM’s selling price. A Stackelberg game incorporating yield and demand uncertainties is subsequently modelled to optimize the CM’s production quantity and the OEM’s order quantity. Finally, a shortage penalty with surplus purchase contract is proposed to coordinate the supply chain. It is found that the optimal outsourcing price is either the lower limit or the stationary point of the common price domain, while the optimal selling price is the upper limit. Whether the CM adopts a conservative or an aggressive production strategy depends on the threshold of the outsourcing price. Moreover, the coordination contract offers great flexibility in parameter selection. By setting the order quantity, penalty price and surplus purchase price properly, the supply chain can realize a win-win situation.