The impact of supply contracts on supply chain product-flow management

One of the performance issues faced by the supply chain (SC) is the competitive production and delivery of products to all partners of the SC. The supply contract linking the Original Equipment Manufacturer (OEM) with its suppliers currently represents an important decision tool influencing the production and delivery of final products. The aim of this article is to investigate by simulation the sensitivity of the supply chain's performance to the variations of two main supply commitments negotiated by contract: flexibility rate and frozen horizon. Each partner belonging to the SC of the OEM performs its own production planning process. A generic analytical model is proposed and applied to simulate the decisional behaviour of each partner in planning its production activities. Contractual constraints (resulting from supply contracts) are formalised and incorporated into the model to allow the study of their impact. Experiments are carried out through a mobile phone SC case study confronted with market fluctuation. The performance of a partner and a SC is assessed via different indicators, mainly the cost and the reliability. The computational results address some managerial findings that are helpful in defining an interesting supply contract along the SC to achieve global performance. (C) 2011 The Society of Manufacturing Engineers. Published by Elsevier Ltd. All rights reserved.