Vertical collaboration in the semiconductor industry: A decision framework for supply chain relationships

Vertical collaboration problem focuses on integrating and modeling the decision problems of the suppliers and buyers together with the market intermediary by identifying the inefficiencies in the traditional marketplace and aligning the incentives of members in the e-marketplace. The present work develops and solves real life e-marketplace models for complex buyers–suppliers procurement problems by estimating the order quantities in the collaborated supply chain. The newsvendor framework considers demand to be independent of the selling price as is generally the case in the semiconductor industry supply chain dealing with techno-savvy customers. The vertical collaboration process would be more effective if the length of the planning horizon and order size is considered as a negotiation parameter between the buyer and supplier. It is observed that the supplier’s expected profit function increases with the buyers’ ordering quantity, which is important in characterizing the general structure of the collaboration scheme of the supply chain.

► This work models the expected cost of buyer–supplier collaborative relationships.
► Two parameters (T, Q) negotiation contract is proposed.
► A decision approach determines the nature of relationships.