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Mathematical Problems in Engineering
Volume 2016, Article ID 8590371, 10 pages
http://dx.doi.org/10.1155/2016/8590371
Research Article

Coordinating a Service Supply Chain under Arms Offset Program’s Intervention by Performance-Based Contracting

Department of Industrial Management, National Taiwan University of Science and Technology, Taipei 10607, Taiwan

Received 23 October 2015; Revised 15 January 2016; Accepted 17 January 2016

Academic Editor: Young Hae Lee

Copyright © 2016 Yi-Kuei Lin et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper investigates a support service supply chain for coordinating with a local third-party logistics provider by arms offset program’s intervention and develops a performance-based contracting framework for the coordinating problem, which remains scarce in the literatures. The performance-based contracting framework evaluates payments and profits for the support service by a game-theoretical approach with principal-agent model. We prove that the proposed framework is an effective tool in acquiring the balance between maximum profit and minimum payment for both parties in the coordinating problem without moral hazard issue. A numerical study consolidates the formulated schemes as contracting preference for both parties’ decision with a higher profit margin at a lower customer’s payment.