Coordinating Three-Level Supply Chain by Revenue-Sharing Contract with Sales Effort Dependent Demand

Abstract

Revenue-sharing contract is a kind of mechanism to improve performance or to achieve perfect coordination of supply chain. Considering a three-level supply chain consisting of a manufacturer, a distributor, and a retailer who faces a stochastic and sales effort dependent demand, the paper analyzes the impact of sales effort on supply chain coordination and expounds the reasons why traditional revenue-sharing contract cannot coordinate supply chain in this condition. Given three cases: only the retailer bears the sales effort cost, only the manufacturer bears the sales effort cost, and the retailer bears the sales effort cost with the manufacturer, the paper proposes an improved revenue-sharing contract based on quantity discount policy to coordinate the supply chain. It illustrates that improved revenue sharing contract can coordinate supply chain by implementing it in one transaction or two transactions of three-level supply chain. The model of improved revenue-sharing contract is optimized, respectively, by addition form and multiplication form with sales effort dependent demand. Formulas are given to determine the optimal contract parameters. Finally, numerical experiments are given to test the accuracy of the model of improved revenue-sharing contract. Hindawi Publishing Corporation

Supply Chain Coordination Using Revenue-Sharing Contract with Distributor’s Effort Dependent Demand

“…The reason lies in the fact that the distributor bears all the effort cost of the supply chain, but he only gets partial profit of the whole supply chain. Similarly, if only the retailer or only the manufacturer bears the effort cost, the traditional revenue-sharing contract cannot coordinate the supply chain [32]. Thus we come to a conclusion: the traditional revenue-sharing contract cannot coordinate a three-level supply chain with effort dependent demand.…”

“…Pang et al [31] propose the introduction of the quantity discount policy in one transaction or two transactions of the three-level supply chain to solve the problem of the revenue-sharing contract being unable to coordinate supply chain. From the basis of Pang et al [29], the model is further improved [32].…”

“…If 2 2  -1 > 1 -1/ 1  , the optimal selecting sequence for the retailer is (B, C, A ). Both this paper and the literature [32] study the profit of the supply chain members when only one member bears the effort cost in condition C. Table II shows the profit of the supply chain members in condition C. …”

Coordination and competition in a common retailer channel: Wholesale price versus revenue-sharing mechanisms

“…Recently, RS contracts have been applied successfully in the video cassette rental industry. Studies on revenue sharing contract have considered deterministic demand (Giannoccaro and Pontrandolfo, 2004) and stochastic demand settings (Wang et al, 2004;Cachon and Lariviere, 2005;Yao et al, 2008;Qin and Yang, 2008;Pang et al, 2014;Sammi and Panos, 2014).…”

Emergency Coordination Model of Fresh Agricultural Products’ Three-Level Supply Chain with Asymmetric Information

“…As transfer of leading right in the 21st century, retailers are playing an increasing important role in supply chain [14,15]. Therefore study on coordination of three-level supply chain has practical value under sharp increasing demand.…”