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Supply relations are often governed by so-called relational
contracts. These are informal agreements sustained by the value of
future cooperation. Although relational contracts persist in
practice, research on these types of contract is only emerging in
Operations and Supply Chain Management. This book studies a
two-firm supply chain, where repeated transactions via
well-established supply contracts and continued quality-improvement
efforts are governed by a relational contract. We are able to
characterize an optimal relational contract, i.e., to develop
policies for supplier and buyer that structure investments in
quality and flexibility in a way that no other self-enforcing
contract generates higher expected joint surplus. A second goal is
to compare the performance of different returns mechanisms in the
context of relational contracting (quantity flexibility and
buy-back contracts). Industry studies motivate the presented
model.
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