Multi-tier supply chains demand hybrid contracts and smarter tech

A systematic literature review has reaffirmed the critical role of coordination contracts in improving global supply chain performance amid rising complexities and interdependencies. The study, titled “Coordination Contracts and Their Impact on Supply Chain Performance: A Systematic Literature Review” and published in Engineering Proceedings, analyzes 28 peer-reviewed articles from 2019 to 2024 to classify the types, assess performance impacts, and suggest future directions for these contracts.

Presented at the 2025 International Conference on Smart Management in Industrial and Logistics Engineering (SMILE), the review identifies key coordination models and emphasizes the growing need for hybrid analytical and technological strategies to manage evolving multi-echelon supply chains.

What types of coordination contracts are being used and how do they improve performance?

The study systematically identifies 14 coordination contract types, each tailored to address specific operational, financial, or strategic goals within a supply chain. These include widely adopted models such as wholesale price, buyback, and revenue-sharing contracts, as well as technologically advanced formats like smart contracts.

• Wholesale price contracts are straightforward but often fail to ensure mutual profitability under demand uncertainty.
• Buyback contracts, conversely, allow suppliers to reclaim unsold goods, fostering risk-sharing and preventing overstock waste.
• Quantity flexibility and revenue-sharing contracts are popular for enabling dynamic adjustments in order volumes and equitably distributing revenues, particularly in fast-fashion and tech-driven sectors.
• Cost-sharing and profit-sharing contracts further align incentives by encouraging joint investment in innovation, marketing, or sustainability.
• More sophisticated variants such as quadratic quantity discounts and two-part tariffs account for nonlinear demand responses and environmental taxation, respectively.
• Minimum order quantity (MOQ), BOGO promotions, and credit-based contracts cater to specific retail logistics models.
• Smart contracts, enabled by blockchain technology, automate terms execution using real-time data, significantly boosting trust and traceability in decentralized networks.

Crucially, each contract type influences stakeholder behavior differently depending on structure, information symmetry, risk tolerance, and demand predictability. For instance, contracts involving Nash or Rubinstein bargaining frameworks effectively optimize stakeholder profits while maintaining fairness in decentralized systems. The study notes that revenue-sharing and hybrid contracts have shown the most promise in balancing stakeholder interests and enhancing supply chain resilience.

How are these contracts evaluated and what are the current limitations?

The study outlines multiple methodological frameworks for evaluating coordination effectiveness. Game theory, including Nash equilibrium and Stackelberg models, remains dominant in simulating stakeholder behavior under competitive or cooperative settings. These models are particularly suited to static or leader-follower scenarios where decision-making is interdependent but bounded by rationality.

Dynamic frameworks such as differential game theory offer a longer-term perspective, capturing temporal decision-making and evolving market conditions. However, these models still struggle with incorporating stochastic elements due to their mathematical complexity, limiting their real-world application in uncertain environments.

On the technological front, reinforcement learning (RL) and blockchain integration emerge as promising yet underutilized tools. RL allows adaptive, environment-aware optimization of pricing and demand under Stackelberg game structures, while blockchain enables traceability and automation in contract execution.

Despite these advancements, the literature reveals a strong skew toward dyadic supply chains - simplified two-level models that fail to capture the complexity of modern, globally integrated networks. Most studies neglect multi-tier coordination, cross-border regulation variances, and supply chain disruptions from external shocks like pandemics or geopolitical instability.

Another critical gap is the limited use of empirical data. Most frameworks remain theoretical, lacking validation through real-world industrial or logistics datasets. This constrains their ability to adapt to diverse industries, from pharmaceuticals and perishables to high-tech and sustainable products.

What future directions should research pursue to optimize contract performance?

The authors conclude that future research must pivot toward more integrated, intelligent, and empirically grounded models. Combining coordination contract structures with artificial intelligence, particularly in forecasting, dynamic pricing, and behavioral modeling, could vastly improve the adaptability and scalability of supply chain solutions.

Key recommendations include:

• Adopting hybrid contracts: Merging cost-sharing, revenue-sharing, and smart contract features can provide both flexibility and traceability across tiers.
• Incorporating AI-driven simulation tools: Using machine learning to model nonlinear stakeholder behavior under uncertainty can reduce reliance on overly deterministic game theory models.
• Expanding focus to multi-echelon systems: Future studies should examine how coordination contracts function in supply chains with more than two stakeholders, accounting for asymmetric information, cross-tier risk distribution, and strategic misalignment.
• Empirical validation through case studies: Industrial trials, especially in sectors facing sustainability regulations and technology disruptions, are essential to validate theoretical models and refine contract structures.
• Integration with sustainability metrics: Contracts should increasingly address environmental concerns, such as emissions tracking and carbon credit systems, through embedded traceability and incentive schemes.

To sum up, effective coordination in modern supply chains is no longer just a matter of contract structure, but a function of technological adoption, strategic alignment, and data-driven adaptability.