Models of contracts with stochatic demand

Supply chain is a decentralized system where material, financial, information and decision flows connect members. Supply chain contract is a coordination mechanism that provides incentives to all of its members so that the decentralized supply chain behaves as the integrated one. When the demand is stochastic than the newsvendor model can be applied. The newsvendor model is not complex, but it is sufficiently rich to study important questions in supply chain coordination. In a standard newsvendor problem the price is assumed to be fixed. There is a vast literature on supply chain contracts recently. However, little work has been done on the relationships of those supply chain contract models and on the combined problem of supply chain coordination with price-dependent stochastic demand. The proposed contract for supply chain coordination with price-dependent stochastic demand has desirable features. The supply chain is fully coordinated. Flexibility to allow any division of the supply chain’s profit is managed by the selected parameter in the setting of the wholesale price and the buyback price. It has relative advantages in implementation. The supplier needs to monitor the price only, not the quantity sold. The analysis of the simple cases of contracts gives recommendations for more complex real problem