How Can Supply Chain Coordination Be Improved with the Help of Contractual Mechanisms: A Comparative Analysis of Wholesale Pricing and Quantity Discount

Abstract

Supply chains have evolved into networks since the 2000s, and as a result of this expansion, companies are facing major challenges. The alignment and coordination of value-creating processes are of unprecedented importance, as cooperative relationships – and thus the coordination of value-creating processes among supply chain members – have become even more crucial in a digitized and automated world. Among supply chain coordination tools, this study examines coordination mechanisms based on contracts, specifically comparing wholesale pricing and quantity discounts based on a set of parameters accepted in the literature. Using a case study, the researcher illustrates the operational mechanisms, advantages, disadvantages, and coordination strength of the two contract types through a specific example. Based on the results, if members wish to move toward a less distant relationship and establish a cooperative, collaborative relationship – one that already involves operational integration, shared goals, and decision-making mechanisms –, the quantity discount is potentially a good solution for strengthening coordination. The researcher also illustrates this with a numerical example.