Coordinating a Three-level Supply Chain Based on TT-BB Combined Contracts

A supply chain is made up of independent entities having independent decision-making abilities, each intent on maximizes their own benefits. The coordination of a three-level supply chain made up of manufacturer, distributor and retailer is studied under the random demand. Firstly, the optimal order quantity is determined with the channel coordination the supply chain; then the paper designs a combined contract (Two-part Tariff contract & Buyback contract, TT-BB), namely, manufacturer transacts with distributor by two-part tariff contract and distributor transacts with retailer by buyback contract, and validates that TT-BB contracts can coordinate the three-level supply chain by choosing reasonable parameters. The reasonable choice of parameters can attain the win-win good among all business members, which will help to improve the decision-making capacity and competive ability of businesses involved in the supply chain, and the sizes of parameters in a reasonable range relate to the bargaining position of a business. Finally, the validity of the TT-BB contracts is illustrated by a numerical example.