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Capacity Investments in Supply Chain with Rebate Contracts |
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Abstract: In this paper, a supply chain consisting of one supplier and one manufacturer, with the latter being the only source for a customized product is considereel. Demand is stochastic, the supplier has to invest in capacity before seeing the demand, and the manufacturer makes his final order after seeing the demand. To allow for the loss of overcapacity, the supplier will build less capacity than what is the optimal for the supply chain. In this paper, two kinds of rebate contracts are put forward, the former can induce the supplier to invest in more capacity than under the wholesale price contract, the latter coordinates the supply chain. Finally the three kinds of contracts are compared.
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Received: 22 August 2008
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