Production, pricing, and contract management in supply chains

Traditionally, product pricing has been under the control of a firm's marketing organization while planning production has been the responsibility of the manufacturing and distribution organizations. In the past decade, firms have increasingly recognized the benefits of coordinating these decisions rather than making them independently or sequentially. This dissertation focuses on decision models that integrate pricing and production/inventory decisions for settings in which the ultimate quantity demanded from the supply chain depends upon the pricing decisions.; We first consider the problem of jointly choosing prices and production quantities for a single product over multiple periods for a capacity-constrained manufacturer facing price-sensitive demands and a large setup cost per production run. We characterize properties of the optimal solution and develop solution procedures. Numerical examples show that, counter to intuition, optimal prices and marginal returns on capacity expansion may increase as capacity increases. We also illustrate the benefit of using a variable rather than a fixed pricing policy when the demand functions vary from period to period.; In the second part of the dissertation, we study a supply chain consisting of a single manufacturer and a single supplier who produces a key custom component with a long lead time. The supply arrangement consists of an advance purchase by the manufacturer at a price determined by the supplier prior to the start of production at a time when demand is uncertain, and a contingent purchase at a negotiated price after demand becomes known. We show that the addition of contingent purchase may degrade the performance of the supply chain, but the manufacturer (supplier) may use a price cap (floor) to reduce the adverse effects and make both parties better off.; The third part of this dissertation is concerned with contract design for a supply chain with a buyer and a supplier who have risk constraints. We compare the performance of the supply chain under commonly-used contracts, and derive the best (truth-telling) contract. The best contract has the property that, at optimality, at most one party will not satisfy her profit target at each demand realization.