Mitigating yield uncertainty from the perspectives of contract manufacturing and technology licensing

[Display omitted] •Three contract manufacturing modes under yield uncertainty are proposed.•The impact of contract manufacturing on yield uncertainty is discussed.•Contract manufacturing mitigates the impact of yield uncertainty in certain cases.•It may be beneficial for the supplier to give up some decision-making authority.•Improving production efficiency is not optimal for the contract manufacturer. In the low-carbon environment, green manufacturing by manufacturers often requires upstream to provide precision components. However, the lack of production experience of high-tech upstream leads to yield uncertainty. To explore the impact of yield uncertainty on green supply chain operations and analyze its solution, we propose a contract manufacturing mode with technology licensing and further consider pricing licensing or production licensing. The Stackelberg game is employed to construct these three models and a benchmark model without contract manufacturing. Moreover, we discuss the supplier’s mode preference by numerical analysis. Our findings reveal that the contract manufacturing mode with technology licensing mitigates the detrimental influence of yield uncertainty, boosting supplier profitability by 49.00% and manufacturer profitability by 61.76% when the expected yield rate is small or the expected yield rate is large with a small yield fluctuation. Furthermore, when both expected yield rate and profit-sharing ratio are low, increased yield fluctuation predominantly affects the downstream, whereas a win–win–win situation can be achieved through increased profit-sharing ratio. Additionally, compared with contract manufacturing mode with technology licensing, additional pricing licensing or production licensing augments supplier profitability by more than 10.56% in certain cases. Interestingly, improving production efficiency may not enhance the contract manufacturer profitability in both modes due to potential trade-offs with competition and the high cost. This paper contributes to the development of contract manufacturing policies, guiding suppliers and contract manufacturers towards achieving synergetic economic and environmental development. Future research could examine the applicability of the proposed contract manufacturing mode in various industries or identify additional factors affecting supplier profitability.