Chapter 4: Supply contract
1. 2-stage supply chain: MTO
− Strategic components: Requires effective contractual relationships focused on
coordinating the supply chain
− Non-strategic components: flexibility to market conditions is perceived as more
important than a permanent relationship with the suppliers
1.1 Supply contracts
− In such a sequential supply chain, each party determines its own course of action
independent of the impact of its decisions on other parties
Ineffective strategy since it does not identify what's best for the entire supply chain.
, Ratailer assumes all of the risks of having more inventory than sales, while the
manufacturer takes no risk
Since the buyer limits his order quantity, there is a significant increase in the
likelihood of out of stock
If the supplier is willing and able to share some of the risks with the buyer, it may be
profitable for the buyer to order more items
1. 2-stage supply chain: MTO
− Strategic components: Requires effective contractual relationships focused on
coordinating the supply chain
− Non-strategic components: flexibility to market conditions is perceived as more
important than a permanent relationship with the suppliers
1.1 Supply contracts
− In such a sequential supply chain, each party determines its own course of action
independent of the impact of its decisions on other parties
Ineffective strategy since it does not identify what's best for the entire supply chain.
, Ratailer assumes all of the risks of having more inventory than sales, while the
manufacturer takes no risk
Since the buyer limits his order quantity, there is a significant increase in the
likelihood of out of stock
If the supplier is willing and able to share some of the risks with the buyer, it may be
profitable for the buyer to order more items
