Supply Contracting Under Information Asymmetry and Delivery Performance Consideration

  • Fuqiang Zhang


A global economy and rapidly-changing market conditions have greatly intensified industry competition. This, in turn, has led to an ever-increasing level of outsourcing/offshoring activities by firms in order to gain cost advantage and market share [35, 40]. According to the Department of Commerce [29], typical US manufacturers spend more than half of their revenue on goods and services obtained from external suppliers. As a result, supply management has become a significant issue for many companies that rely more on their suppliers for the delivery of components, products, and services. When sourcing from outside suppliers, a buyer should consider both price and non-price factors.


Supply Chain Delivery Performance Optimal Mechanism Cost Uncertainty Procurement Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. 1.
    Anupindi R, Akella R (1993) Diversification under supply uncertainty. Manag Sci 39(8):944–963MATHCrossRefGoogle Scholar
  2. 2.
    Bagnoli M, Bergstrom T (2005) Log-concave probability and its applications. Econ Theory 26(2):445–469MathSciNetMATHCrossRefGoogle Scholar
  3. 3.
    Beil D, Wein L (2003) An inverse-optimization-based auction mechanism to support a multiattribute RFQ process. Manag Sci. 49(11):1529–1545MATHCrossRefGoogle Scholar
  4. 4.
    Benjaafar S, Elahi E, Donohue K (2007) Outsourcing via service quality competition. Manag Sci 53(2):241–259MATHCrossRefGoogle Scholar
  5. 5.
    Bernstein F, DeCroix GA (2006) Inventory policies in a decentralized assembly system. Oper Res 54(2):324–336MathSciNetMATHCrossRefGoogle Scholar
  6. 6.
    Beth S, Burt D, Copacino W et al (2003) Supply chain challenges: building relationships. Harv Bus Rev JulyGoogle Scholar
  7. 7.
    Bhattacharyya S, Lafontaine F (1995) Double-sided moral hazard and the nature of shared contracts. Rand J Econ 26(4):761–781CrossRefGoogle Scholar
  8. 8.
    Bolandifar E, Feng T, Zhang F (2010) Asymmetric information and enforcement in supply contract design. Working paper, Washington University in St. Louis.Google Scholar
  9. 9.
    Bower AG (1993) Procurement policy and contracting efficiency. Int Econ Rev 34(4):873–901MATHCrossRefGoogle Scholar
  10. 10.
    Branco F (1997) The design of multidimensional auctions. Rand J Econ 28(1):63–81CrossRefGoogle Scholar
  11. 11.
    Bulkeley W (2003) Plexus strategy: small runs of more things. Wal Str J 8 OctGoogle Scholar
  12. 12.
    Burt D (1989) Managing suppliers up to speed. Harv Bus Rev July–AugGoogle Scholar
  13. 13.
    Burnetas A, Gilbert SM, Smith C (2007) Quantity discounts in single period supply contracts with asymmetric demand information. IIE Trans 39(5):465–480CrossRefGoogle Scholar
  14. 14.
    Cachon GP (2003) Supply chain coordination with contracts. In: Graves S, Kok T (eds) The handbook of operations research and management science: supply chain management.. Kluwer, USAGoogle Scholar
  15. 15.
    Cachon GP, Lariviere M (2001) Contracting to assure supply: how to share demand forecasts in a supply chain. Manag Sci 47(5):629–646MATHCrossRefGoogle Scholar
  16. 16.
    Cachon GP, Zhang F (2006) Procuring fast delivery: sole-sourcing with information asymmetry. Manag Sci 52(6):881–896MATHCrossRefGoogle Scholar
  17. 17.
    Cachon GP, Zhang F (2007) Obtaining fast delivery in a queueing system via performance-based allocation of demand. Manag Sci 53(3):408–420MATHCrossRefGoogle Scholar
  18. 18.
    Cachon GP, Zipkin PH (1999) Competitive and cooperative inventory policies in a two-stage supply chain. Manag Sci 45(7):936–953MATHCrossRefGoogle Scholar
  19. 19.
    Caldentey R, Wein LM (2003) Analysis of a decentralized production-inventory system. MSOM 5(1):1–17Google Scholar
  20. 20.
    CAPS Research (2006) Services spend management: outsourcing/offshoring your services spend. Center for advanced purchasing studies, Tempe, AZGoogle Scholar
  21. 21.
    Che YK (1993) Design competition through multi-dimensional auctions. Rand J Econ 24(4):668–680CrossRefGoogle Scholar
  22. 22.
    Chen F, Federgruen A, Zheng YS (2001) Coordination mechanisms for a distribution system with one supplier and multiple retailers. Manag Sci 47(5):693–708MATHCrossRefGoogle Scholar
  23. 23.
    Chen F, Zheng YS (1994) Lower bounds for multiechelon stochastic inventory systems. Manag Sci 40(11):1426–1443MATHCrossRefGoogle Scholar
  24. 24.
    Chen R, Roundy R, Zhang R et al (2005) Efficient auction mechanisms for supply chain procurement. Manag Sci 51(3):467–482MATHCrossRefGoogle Scholar
  25. 25.
    Chu LY, Sappington DEM (2007) Simple cost-sharing contracts. Am Econ Rev 97(2):419–428CrossRefGoogle Scholar
  26. 26.
    Corbett CJ (2001) Stochastic inventory systems in a supply chain with asymmetric information: cycle stocks, safety stocks, and consignment stock. Oper Res 49(4):487–500MathSciNetMATHCrossRefGoogle Scholar
  27. 27.
    Corbett CJ, de Groote X (2000) A supplier’s optimal quantity discount policy under asymmetric information. Manag Sci 46(3):444–450MATHCrossRefGoogle Scholar
  28. 28.
    Corbett CJ, Zhou D, Tang CS (2004) Designing supply contracts: contract type and information asymmetry. Manag Sci 50(4):550–559MATHCrossRefGoogle Scholar
  29. 29.
    Department of Commerce (2006) Statistics for industry groups and industries: Annual survey of manufactures. Scholar
  30. 30.
    Elmaghraby WJ (2000) Supply contract competition and sourcing strategies. MSOM 2(4):350–371Google Scholar
  31. 31.
    Elmaghraby WJ (2004) Auctions and pricing in E-markeplaces. In: Simchi-Levi D, Wu SD, Shen ZJ (eds) Handbook of quantitative supply chain analysis: modeling in the e-business era. Kluwer, USAGoogle Scholar
  32. 32.
    Farlow D, Schmidt G, Tsay A (1996) Supplier management at Sun Microsystems (A). Stanford business school caseGoogle Scholar
  33. 33.
    Federgruen A, Yang N (2008) Selecting a portfolio of suppliers under demand and supply risks. Oper Res 56(4):916–936MathSciNetMATHCrossRefGoogle Scholar
  34. 34.
    Federgruen A, Yang N (2009) Optimal supply risk diversification under general supply risks. Oper Res 57(6):1451–1468MATHCrossRefGoogle Scholar
  35. 35.
    Friedman TL (2005) The world is flat: a brief history of the twenty-first century. Farrar Straus and Giroux, New YorkGoogle Scholar
  36. 36.
    Gilbert SM, Weng ZK (1998) Incentive effects favor nonconsolidating queues in a service system: the principle-agent perspective. Manag Sci 44(12):1662–1669MATHCrossRefGoogle Scholar
  37. 37.
    Gümüş M, Ray S, Gurnani H (2010) Supply side story: risks, guarantees, competition and information asymmetry. Working paper, McGill University.Google Scholar
  38. 38.
    Ha AY (2001) Supplier-buyer contracting: asymmetric cost information and cutoff level policy for buyer participation. Nav Res Logist 48:41–64MATHCrossRefGoogle Scholar
  39. 39.
    Ha AY, Li L, Ng SM (2003) Price and delivery logistics competition in a supply chain. Manag Sci 49(9):1139–1153MATHCrossRefGoogle Scholar
  40. 40.
    Hausman WH, Lee HL, Subramaniam U (2005) Global logistics indicators, supply chain metrics and bilateral trade patterns. World bank policy research working paper, NovemberGoogle Scholar
  41. 41.
    Holmstrom B, Milgrom P (1987) Aggregation and linearity in the provision of intertemporal incentives. Econometrica 55(2):303–328MathSciNetCrossRefGoogle Scholar
  42. 42.
    Katok E, Thomas D, Davis A (2008) Inventory service-level agreements as coordination mechanisms: the effect of review periods. MSOM 10(4):609–624CrossRefGoogle Scholar
  43. 43.
    Kay E (2005) Ways to measure supplier performance. Scholar
  44. 44.
    Kayiş E, Erhun F, Plambeck EL (2007) Delegation vs. control of component procurement. Working paper, Stanford UniversityGoogle Scholar
  45. 45.
    Klemperer P (1999) Auction theory: a guide to the literature. J Econ Surv 13(3):227–286CrossRefGoogle Scholar
  46. 46.
    Kostamis D, Beil D, Duenyas I (2009) Total-cost procurement auctions: impact of suppliers’ cost adjustments on auction format choice. Manag Sci 55:1985–1999MATHCrossRefGoogle Scholar
  47. 47.
    Lacity MC, Willcocks LP (1998) An empirical investigation of information technology sourcing practices: Lessons from experience. MIS Q 22(3):363–408CrossRefGoogle Scholar
  48. 48.
    Laffont JJ, Martimort D (2002) The theory of incentives: the principal-agent model. Princeton University Press, PrincetonGoogle Scholar
  49. 49.
    Li CL, Kouvelis P (1999) Flexible and risk-sharing supply contracts under price uncertainty. Manag Sci 45(10):1378–1398MATHCrossRefGoogle Scholar
  50. 50.
    Özer Ö, Wei W (2006) Strategic commitments for an optimal capacity decision under asymmetric forecast information. Manag Sci 52(8):1238–1257CrossRefGoogle Scholar
  51. 51.
    Pinker E, Seidmann A, Vakrat Y (2003) Managing online auctions: current business and research issues. Manag Sci 49(11):1457–1484CrossRefGoogle Scholar
  52. 52.
    Pyke D, Johnson E (2003) Sourcing strategies and supplier relationships: alliances vs. eprocurement. In: Billington C, Lee H, Neale J (eds) The practice of supply chain management. Kluwer Publishers, USAGoogle Scholar
  53. 53.
    Rangan VK (1998) FreeMarkets Online. Harv Bus Sch case #9-598-109.Google Scholar
  54. 54.
    Ramasesh RV, Ord JK, Hayya JC et al (1991) Sole versus dual sourcing in stochastic lead-time (s, Q) inventory models. Manag Sci 37(4):428–443CrossRefGoogle Scholar
  55. 55.
    Ray S, Li S, Song Y (2005) Tailored supply chain decision making under price-sensitive stochastic demand and delivery uncertainty. Manag Sci 51(12):1873–1891MATHCrossRefGoogle Scholar
  56. 56.
    Tang CS (2006) Perspectives in supply chain risk management. Int Prod Econ 103(2):451–488CrossRefGoogle Scholar
  57. 57.
    Taylor TA, Plambeck EL (2007) Simple relational contracts to motivate capacity investment: price-only versus price-and-quantity. MSOM 9(1):94–113CrossRefGoogle Scholar
  58. 58.
    Thomas DJ (2005) Measuring item fill-rate performance in a finite horizon. MSOM 7(1):74–80Google Scholar
  59. 59.
    Thonemann U, Behrenbeck K, Kupper J et al (2005) Supply chain excellence im handel (in German). Financial Times Deutschland/Gabler, Wiesbaden, GermanyGoogle Scholar
  60. 60.
    Thurm S (1998) Some US manufacturers prosper by easing rise of ’virtual’ firm. Wall Str J 18 AugustGoogle Scholar
  61. 61.
    Tomlin B (2006) On the value of mitigation and contingency strategies for managing supply chain disruption risks. Manag Sci 52(5):639–657MathSciNetMATHCrossRefGoogle Scholar
  62. 62.
    Tunca T, Wu Q (2009) Multiple sourcing and procurement process selection with bidding events. Manag Sci 55(5):763–780MATHCrossRefGoogle Scholar
  63. 63.
    Wise R, Morrison D (2000) Beyond the exchange: the future of B2B. Harv Bus Rev Nov–Dec 86–96Google Scholar
  64. 64.
    Yang Z, Aydin G, Babich V et al (2009) Supply disruptions, asymmetric information and a backup production option. Manag Sci 55(2):192–209MATHCrossRefGoogle Scholar
  65. 65.
    Zhang F (2004) Coordination of lead times in supply chains. Ph.D. Dissertation. University of PennsylvaniaGoogle Scholar
  66. 66.
    Zhang F (2006) Competition, cooperation and information sharing in a two-echelon assembly system. MSOM 8(3):273–291Google Scholar
  67. 67.
    Zhang F (2010) Procurement mechanism design in a two-echelon inventory system with price-sensitive demand. MSOM 12(4): 608–626Google Scholar

Copyright information

© Springer-Verlag London Limited 2012

Authors and Affiliations

  1. 1.Olin Business SchoolWashington UniversitySt. LouisUSA

Personalised recommendations