Business Administration, Management, and Operations Commons^™

Contracting Mechanisms For Stable Sourcing Networks, Jennifer K. Ryan, Lusheng Shao, Daewon Sun

Department of Supply Chain Management and Analytics: Faculty and Staff Publications

Problem definition: We study profit allocation for a sourcing network, in which a buyer sources froma set of differentiated suppliers with limited capacity under uncertain demand for the final product. Whereas the buyer takes the lead in forming the sourcing network and designing the contract mechanism, due to their substantial bargaining power, the suppliers take the lead in determining the terms of the contract. Academic/practical relevance: We identify contracting mechanisms that will ensure the stability of the sourcing network in the long term, where a stable sourcing network requires an effective profitallocation scheme that motivates all members to …