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Questions and Answers
What is the primary purpose of a supply chain contract?
What is the primary purpose of a supply chain contract?
In the context of a wholesale price contract, which party typically bears the risk of demand uncertainty?
In the context of a wholesale price contract, which party typically bears the risk of demand uncertainty?
What happens if a contract is not designed well in a supply chain?
What happens if a contract is not designed well in a supply chain?
What is a characteristic of a wholesale price contract?
What is a characteristic of a wholesale price contract?
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What is the role of incentives in a supply chain contract?
What is the role of incentives in a supply chain contract?
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What happens to the supply chain profit as the wholesale price increases from $20 to $90?
What happens to the supply chain profit as the wholesale price increases from $20 to $90?
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At what wholesale price does the retailer profit peak according to the data?
At what wholesale price does the retailer profit peak according to the data?
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What is a primary characteristic of a buyback contract?
What is a primary characteristic of a buyback contract?
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Which of the following wholesale prices results in the lowest manufacturer profit?
Which of the following wholesale prices results in the lowest manufacturer profit?
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Which profit tends to decrease as the wholesale price increases?
Which profit tends to decrease as the wholesale price increases?
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At what wholesale price is the supply chain profit equal to $7500?
At what wholesale price is the supply chain profit equal to $7500?
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Which characteristic is NOT associated with the buyback contract?
Which characteristic is NOT associated with the buyback contract?
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As the wholesale price reaches $90, which of the following is true?
As the wholesale price reaches $90, which of the following is true?
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What is the primary advantage of the consignment model for retailers?
What is the primary advantage of the consignment model for retailers?
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In the context of the consignment model, who bears the risk of demand uncertainty?
In the context of the consignment model, who bears the risk of demand uncertainty?
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Why might a retailer prefer to use a consignment model when dealing with unbranded products?
Why might a retailer prefer to use a consignment model when dealing with unbranded products?
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What is a characteristic of discounts offered by suppliers in the context of contracts?
What is a characteristic of discounts offered by suppliers in the context of contracts?
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Which of the following platforms is an example of the creator economy?
Which of the following platforms is an example of the creator economy?
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What is a potential disadvantage for retailers in a consignment model?
What is a potential disadvantage for retailers in a consignment model?
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What is the role of large platforms in the creator economy?
What is the role of large platforms in the creator economy?
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What is a common characteristic shared by most contracts in the creator economy?
What is a common characteristic shared by most contracts in the creator economy?
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What does the parameter 'f' represent in the context of supply chain performance?
What does the parameter 'f' represent in the context of supply chain performance?
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In a decentralized supply chain, how does a decrease in 'w' affect the total quantity produced?
In a decentralized supply chain, how does a decrease in 'w' affect the total quantity produced?
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Which contract type provides complete risk protection for a retailer up to a certain limit?
Which contract type provides complete risk protection for a retailer up to a certain limit?
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What is the implication of a high value of 'SC share' in a decentralized supply chain?
What is the implication of a high value of 'SC share' in a decentralized supply chain?
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If the 'profit' for the retailer decreases as 'w' increases, which statement is likely correct?
If the 'profit' for the retailer decreases as 'w' increases, which statement is likely correct?
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Based on the information provided, what happens to the 'Manufacturer SC profit' as the efficiency increases?
Based on the information provided, what happens to the 'Manufacturer SC profit' as the efficiency increases?
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What trend occurs with 'Total' supply chain profit as the 'f' parameter approaches zero?
What trend occurs with 'Total' supply chain profit as the 'f' parameter approaches zero?
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In the scenario where 'w' is fixed, which of the following occurs as 'f' decreases?
In the scenario where 'w' is fixed, which of the following occurs as 'f' decreases?
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What formula is used to calculate the cost of understocking?
What formula is used to calculate the cost of understocking?
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What is represented by the Critical Ratio (CSL)?
What is represented by the Critical Ratio (CSL)?
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What is the expected sales calculation based on given data?
What is the expected sales calculation based on given data?
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How is expected retailer profit calculated?
How is expected retailer profit calculated?
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What is the calculated expected stockout when Lz = 0.399 and σ = 30?
What is the calculated expected stockout when Lz = 0.399 and σ = 30?
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What does a higher value of 'f' indicate in the context of supply chain performance?
What does a higher value of 'f' indicate in the context of supply chain performance?
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What is the correct expression for calculating supply chain profit?
What is the correct expression for calculating supply chain profit?
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When analyzing supply chain efficiency, what does a profit share of 0.62 indicate?
When analyzing supply chain efficiency, what does a profit share of 0.62 indicate?
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Which of the following products is most likely to benefit from a buyback contract due to limited shelf life?
Which of the following products is most likely to benefit from a buyback contract due to limited shelf life?
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What is represented by 'b' in the buyback contract?
What is represented by 'b' in the buyback contract?
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Given the parameters, if the mean demand (μ) is 100 and the standard deviation (σ) is 30, the retailer is likely to stock how many units (Q) at a buyback value of 20?
Given the parameters, if the mean demand (μ) is 100 and the standard deviation (σ) is 30, the retailer is likely to stock how many units (Q) at a buyback value of 20?
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What effect does an increase in the buyback value 'b' typically have on the retailer's profit?
What effect does an increase in the buyback value 'b' typically have on the retailer's profit?
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Which of the following mathematical symbols represents the wholesale price in the buyback contract?
Which of the following mathematical symbols represents the wholesale price in the buyback contract?
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In the buyback contract table, what is the relationship between supply chain profit (PSC) and manufacturer profit (Pm) as the buyback price increases?
In the buyback contract table, what is the relationship between supply chain profit (PSC) and manufacturer profit (Pm) as the buyback price increases?
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What is a likely outcome when the salvage value is set to 0 in a buyback contract?
What is a likely outcome when the salvage value is set to 0 in a buyback contract?
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How does the standard deviation (σ) affect the decision-making in a buyback contract?
How does the standard deviation (σ) affect the decision-making in a buyback contract?
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Study Notes
Supply Chain Coordination through Contracts
- Contracts legally bind two parties, typically manufacturers and retailers.
- The role of supply chain (SC) contracts extends beyond the terms and conditions.
- Contracts detail which party bears the risk and define the payoffs.
- SC entities make local optimization decisions based on agreed-upon risk and incentives in a decentralized setting.
- The incentives of other organizations in the supply chain are evaluated for alignment.
- Poorly designed contracts can lead to conflicts and damage overall SC performance.
Contract Characteristics
- Wholesale Price Contract: The supplier (upstream) offers a fixed wholesale price to the retailer (downstream).
- The risk of demand uncertainty is borne by the retailer.
- This contract type is the simplest and has the lowest administrative cost.
Wholesale Price Contract Detail
- Selling Price (p) = 100
- Manufacturing Cost (c) = 20
- Salvage Value (s) = 0
- Mean Demand (μ) = 100
- Standard Deviation (σ) = 30
- Wholesale Price (w) varies (20, 30, ..., 90)
- Calculations for Q, Pm, Pr, and Psc are needed.
Data for Wholesale Price Contracts
(A table of data is presented, showing calculations for different wholesale prices.)
Buyback Contract
- This contract is common with limited shelf-life products.
- The supplier sells each unit to the retailer at a fixed wholesale price.
- Unsold units are returned to the supplier at a buyback price.
- The risk of demand uncertainty is shared.
- Examples include pharmaceuticals, computer hardware, newspapers, and books.
Buyback Contract Detail
- Selling Price (p) = 100
- Wholesale Price (w) = 80
- Manufacturing Cost (c) = 20
- Salvage Value (s) = 0
- Mean Demand (μ) = 100
- Standard Deviation (σ) = 30
- Buyback value (b) varies (0, 10, 20, ..., 79)
- Calculations for Q,Pm, Pr, and Psc are needed.
Data for Buyback Contracts
(A table of data is presented, showing calculations for different buyback prices.)
Impact of Wholesale Price
- A graph shows the relationship between wholesale price and profits for manufacturers, retailers, and the supply chain.
Markdown Money
- Department stores use this to share risk with clothing suppliers.
- When a product is marked down, a portion (chargeback) is passed to the supplier.
Revenue Sharing Contract
- Common in service industries (entertainment, telecom, medical clinics, e-commerce).
- The supplier sets a fixed wholesale price.
- The retailer shares a portion of the sales revenue with the supplier.
- Examples include entertainment, telecom, surgery devices, and e-commerce.
Revenue Sharing Contract Examples
- Many firms have successfully used revenue-sharing contracts to improve supply chain performance, such as the video rental industry.
- Blockbuster increased its market share by about 5% the year after implementing the revenue-sharing contract.
Additional Contract Examples
- Bharti used revenue sharing programs for telecom network equipment vendors and their IT vendor.
- Apple changed its app revenue-sharing method to 15-85 split to developers.
Phoenix Marketcity Mumbai
- A percentage of retailer's gross sales above a minimum guarantee were sought by the mall in return for lower fixed rents.
- The deal aimed to encourage retailers to occupy and market the new mall location.
- However, the contract resulted in the mall receiving no rental income for the first ten months after its launch, causing business failure.
Different Revenue Sharing Contract Types and Effects
- Different contracts (e.g., wholesale, buyback) vary in terms of the division of risk between the manufacturer and retailer.
- Graphs and tables analyze the impacts of different choices (e.g., wholesale price, buyback value) on manufacturer, retailer, and overall supply chain profits and efficiency under varied demands.
Consignment Model
- The manufacturer sets the quantity of goods stocked.
- The manufacturer is responsible for the inventory until the goods are sold.
- The retailer is not responsible for unsold goods.
- This is common in garment and unbranded product industries.
Designing Contracts for Creator Economy
- Large platforms attract millions of viewers.
- The creators produce content (music, movies, games, etc.) which is financially supported by the advertisement.
Cash Flow for the Creator Economy
- Viewers subscribe to and pay creators for high-value content.
- Platforms take a cut from advertisements or sales from content.
Summary of Contracts and Coordination
- Different contracts enable risk sharing and better coordination, leading to profit for both parties.
Additional Contract Types
- Quantity Flexibility Contract: The supplier sells each unit to the retailer at a fixed wholesale price. The supplier compensates the retailer for any losses from unsold inventory.
- Sales Rebate Contract: The supplier sells to the retailer at a fixed wholesale price. A rebate is given to the retailer for each unit sold above a certain threshold.
- Quantity Discount Contract: Wholesale price decreases with the increasing number of ordered units.
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Description
This quiz examines the essential role of contracts in supply chain coordination, particularly focusing on the wholesale price contract. It covers how contracts influence risk sharing, decision-making, and overall supply chain performance. Test your understanding of contract characteristics and their implications on supply chain efficiency.
