Tayur, Sridhar (ed.) et al., Quantitative models for supply chain management. Dordrecht: Kluwer Academic Publishers (ISBN 0-7923-8344-3/hbk). Int. Ser. Oper. Res. Manag. Sci. 17, 233-268 (1999).
From the introduction: Most stochastic inventory models rest in part on intuition gained from the single period newsvendor problem. It is our contention that the same holds true for supply chain contracting under stochastic demand. Under the contracts we consider here, the fundamental inventory problem remains sufficiently simple that one can characterize its solution with some precision. Because the solution to the inventory problem is well understood, we can develop a detailed analysis of the economic incentives the contracts provide. In particular, we will show that contracting on excess inventory in the form of returns policies can greatly improve channel performance. Returns policies allow for the parties to place “bets” on how realized demand compares to the chosen stocking level. Improved channel performance follows from the manipulation of these wagers.
In what follows, we first present the basic assumptions of the model and evaluate the performance of the integrated channel. We present the simplest terms of trade, a price-only contract. Subsequently we examine richer contractual forms that allow the channel to be coordinated. We consider buy back contracts and analyze quantity flexibility contracts. We briefly discuss other coordination schemes found in the literature and finally offer concluding remarks and directions for future research.