Research On Cost Reduction Incentive Strategies With Information Sharing Supplier

As market competition intensifies and increasing of the labor cost, companies cannot get the competitive advantage with the lower labor cost. The traditional relationship between members of supply chain is breaking down. Instead of that, deep cooperation in supply chain, as an important strategy of many companies, is more popular, for fast response to demand, improving production efficiency and the ability to resist risk. The commitment based on the deep trust relationship is changing the game among the members of supply chain.Under this trend, manufacturer can invest for its suppliers to assist to reduce the products cost. We considered two different ways of information sharing, one is that supplier makes the decision of the disclosure policy before the investment form manufacturer, meets the commitment after the investment, another is that supplier dose not promise manufacturer to disclose or not before the investment, but make the decision after the investment. We studied each situation’s influence for manufacturer’s investment, and the best way of information sharing. We constructed stackelberg game models between the supplier and the manufacturer under different target pricing contracts, namely, percentage and dollar. We analyzed and compared different target pricing contracts through analytical and numerical methods. The study found that in beforehand commitment, supplier preferred to hide the cost information, at the same time, the percentage target pricing contract based on demand exceeds the dollar target pricing contract based on demand in improving the profit of manufacturer and the supplier. Under the dollar target pricing contract, the investment under hiding information is higher; under the percentage target pricing contract, the investment under information disclosure is higher. When the supplier doses not promise the disclosure policy in advance, supplier will adjust the disclosure policy according to the different environmental parameters and the true cost. The higher investment, the bigger range of the disclosure cost. Manufacturer will choose higher investment for better profit. Beforehand commitment is better than its opposite.