Doctoral Dissertation Research in DRMS: Service-Level Agreements and Supply Chain Coordination

Pennsylvania State Univ University Park, University Park PA

Investigators

Abstract

As internet retailing increases in popularity, so does the use of pull contracts; a group of contracts used in any setting where the supplier holds the inventory and ships product directly to the retailer?s end customers. Retailers adopting this method of satisfying demand are frequently presented with the problem of constructing these contracts with their suppliers in a way that maximizes profit. In this Doctoral Dissertation research, the co-PI examines the issue of how pull contracts should be designed so as to allow retailers and suppliers to make more informed decisions when choosing and structuring such contracts. The research will address the issue theoretically and experimentally, placing emphasis on one subset of pull contracts called service-level agreements (SLAs). SLAs are a type of supply chain contract where a retailer pays a bonus to its supplier when its supplier satisfies a certain fraction of the retailer?s demand. Though SLAs are very common in industry, their theoretical properties and actual performance characteristics have not been extensively studied. This work will determine if certain variations of SLAs seen in practice result in the highest profit for the retailer and/or supplier compared to other pull contracts. The broader impact of this research is lies in its potential to improve supply chain efficiency.