Supply Chain Contracts under New Product Development Uncertainty

Abstract

New product development has been serving as a growth engine for companies; given this background, the innovation of suppliers that possess new technologies for new products has been a significant subject for manufacturers, particularly in high-tech industries. However, the technology uncertainty associated with the supplier’s development capability may become a considerable obstacle to new product development projects. In this paper, we further develop an analytical model that has been widely applied in the economics literature and examine two representative supply chain contracts, a revenue-sharing contract and a cost-sharing contract, for new product development through upstream innovation under technology uncertainty. We confirm that the supplier’s development capability has a significant impact on contract feasibility. The revenue-sharing contract helps to attain a higher new product quality level and profit for the supply chain. Furthermore, we explore the relationship between a manufacturer and a supplier concerning the performance of the new product development project. Adopting a Nash bargaining model, we analyze the two supply chain contracts under a cooperative relationship in which the manufacturer and supplier cooperatively determine the sharing portion of the revenue or cost. For both contracts, compared with the unilateral relationship, the cooperative relationship leads to a lower manufacturer profit, but a higher new product quality and a higher supply chain profit.

Decisions on Pricing, Sustainability Effort, and Carbon Cap under Wholesale Price and Cost-Sharing Contracts

“…Further, Dai et al [15] devised game models to investigate two collaboration mechanisms between supply chain members in relation to green R&D investments: cartelization and cost-sharing contracts. Hong and Lee [16] analyzed two popular contract types, revenue-and cost-sharing contracts, considering the development time uncertainties caused by the R&D capabilities of suppliers. They argued that a contract mechanism to determine the fraction of the revenue or cost that a manufacturer shares with its supplier affects supply chain profits and the expected time required for new product development.…”

“…However, various strategies to induce collaboration among supply chain participants have been proposed to achieve sustainable supply chain operation. Among them, cost sharing is considered one of the most desirable cooperative contracts, in which supply chain participants can enhance not only their profitability but also their sustainability by sharing their costs incurred during production, marketing, or R&D [12][13][14][15][16]. Thus, this paper focuses on supply chains with wholesale price contracts and cost-sharing contracts that are governed by a cap-and-trade system.…”