Relational Supply Contracts Optimal Concessions in Return Policies f
Supply relations are often governed by so-called relational contracts. These are informal agreements sustained by the value of future cooperation. Although relational contracts persist in practice, research on these types of contracts is only emerging in
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Michaela Isabel Ho¨ hn
Relational Supply Contracts Optimal Concessions in Return Policies for Continuous Quality Improvements
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Dr. Michaela Isabel H¨ohn WHU-Otto Beisheim School of Management Burgplatz-- 2 56179 Vallendar Germany [email protected]
This publication is based on a dissertation at WHU-Otto Beisheim School of Management. ISSN 0075-8442 ISBN 978-3-642-02790-1 e-ISBN 978-3-642-02791-8 DOI 10.1007/978-3-642-02791-8 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2009932419 c Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: SPi Publisher Services Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Foreword
This book considers a supply chain consisting of one buyer and one supplier. The parties interact over a long time horizon. While the horizon may not be infinite, the parties do not know exactly how long their relationship will last. In each period, the buyer faces stochastic demand and must procure materials from the supplier before demand is realized. Inventory does not carry over from one period to another. The returns from this business depend on the quality of the product, which evolves randomly. However, the parties have some influence on how the quality changes by exerting effort. All benefits from higher quality accrue to the downstream buyer. One issue to consider then is how to induce the supplier to exert effort to improve quality when she does not reap a direct benefit. Transactions between the parties are governed by an explicit contract that calls for the buyer to pay a predetermined amount per unit and for the supplier to compensate the buyer for unsold units – i.e., returns are allowed. Two contract forms are considered, which differ in how returns are managed. The first is a quantity flexibility contract which calls for the supplier to refund the purchase price on returned units fully, but limits what fraction of the order can be returned. The second is a buy-back contract under which any quantity can be returned but the buyer will only receive a partial refund of the purchase price
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