Trust-embedded coordination in supply chain information sharing

Abstract

This paper studies supply chain coordination with trust-embedded cost-sharing contract. In a two-tier supply chain, a retailer (she) and a supplier (he) make their private demand forecasting individually. The retailer places soft-orders, which are costless, non-verifiable and cancellable before shipping, to the supplier. After that, the supplier relies on the retailer’s ordering information to update his demand evaluation and prepare his capacity. How much the supplier relies on the retailer’s ordering information is specified by trust, which is a kind of psychological feeling and affected by multiple factors. When the supplier does not fully trust the retailer, he tends to prepare a conservative capacity to avoid over-production. To coordinate the supply chain, a two-stage coordination process is proposed. At the first stage, the supplier and retailer negotiate a cost-sharing rule to bind soft-orders. At the second stage, the retailer places a soft-order and decides whether or not to bind it referring to the cost-sharing rule. After that, the supplier determines his optimal production capacity. We show that the retailer and supplier value trust differently in the experimental studies. We also find that there is a threshold of negotiation power for the supply chain partners which means the supplier’s/retailer’s expected profit drops down if his/her negotiation power exceeds certain thresholds. The experimental studies also show that the proposed the two-stage coordination is effective.

Keywords:

• supply chain management
• information sharing
• coordination
• trust

Acknowledgement

The authors appreciate the valuable help from Prof. J.C. Lu at Georgia Institute of Technology and express their deepest gratitude to anonymous referees for their comments and suggestions on this research. The presentation of the paper has significantly improved with their inputs.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported in part by the Specialised Research Fund for the Doctoral Program of Higher Education of China [grant number 20120073110029], Interdiscipline Foundation of Shanghai Jiao Tong University [grant number 11JCZ02], National Natural Science Foundation of China [grant number 71371123], [grant number 71131005] and Europe-China High Value Engineering Network (EC-HVEN Project Number: 295,130).