A simulation study on supply chain performance with uncertainty using contract

Traditional optimization techniques have been proposed in order to improve the performance of supply chains. Although these approaches have been shown to be effective, most of them were developed without considering uncertainties in order to simplify the analysis. In distributed supply chains, participating members are not under a sole control of a central authority, the problem is even more stringent due to incomplete information sharing. One way to improve the system performance is to achieve coordination among participating parties through establishment of contracts. The main objective of this paper is to propose a coordination mechanism with early order completion contract to minimize the negative impacts of demand uncertainty. Performance of the system is measured in terms of cost and fill rate. Simulation results indicate that the proposed contract approach is able to improve the performance measures of the system subjects to uncertain demand.