Performance of three-echelon supply chain under uncertainty: influence of contract sequence and individual rationality

Purpose In the paper, the authors study the simultaneous influence of incentive compatibility and individual rationality (IR) on a multi-echelon supply chain (SC) under uncertainty. The authors study the impact of contract sequence on coordination strategies of a serial three-echelon SC consisting of a supplier, a manufacturer and a retailer in an uncertain environment. Design/methodology/approach The authors develop a game-theoretic framework of a serial decentralized three-echelon SC. Under a decentralized setting, the supplier and the manufacturer can choose from two contract types namely, wholesale price (WP) and linear two-part tariff (LTT) and it leads to four different cases of contract sequence. Findings The study show that SC coordination is possible when both the supplier and the manufacturer choose LTT contract. This study not only identifies the influence of contract sequence on profit distribution among SC agents, but also establishes cut-off policies for all SC agents for each contract sequence. This study also examine the influence of chosen contract sequence on optimal profit distribution among SC agents. Research limitations/implications Three-echelon SC coordination under uncertain environment depends upon the contract sequence chosen by SC agents. Practical implications This study results will be helpful to managers of various SCs to take operational decisions under uncertain situations. Originality/value The main contribution of this study is that it explores the possibility of coordination by supply contracts for three-echelon SC in a fuzzy environment.