Abstract
As the demand is more sensitive to price and sales effort, this paper investigates the issue of channel coordination for a supply chain with one manufacturer and one retailer facing price and effort dependent stochastic demand. A composite contract based on the quantity-restricted returns and target sales rebate can achieve coordination in this setting. Two main problems are addressed: (1) how to coordinate the decentralized supply chain; (2) how to determine the optimal sales effort level, pricing, and inventory decisions under the additive demand case. Numerical examples are presented to verify the effectiveness of combined contract in supply chain coordination and highlight model sensitivities to parametric changes.
Highlights
Channel coordination via designing perfect contract is an important topic in supply chain management
As the demand is more sensitive to price and sales effort, this paper investigates the issue of channel coordination for a supply chain with one manufacturer and one retailer facing price and effort dependent stochastic demand
We investigate the role of the composite contract for supply chain coordination and profit allocation
Summary
Channel coordination via designing perfect contract is an important topic in supply chain management. Different from [6], we will transform full returns into quantity-restricted returns and sales rebate and penalty into target sales rebate This composite contract can achieve perfect coordination. In this paper, our analytical results lend insight into how a manufacturer should use quantity-restricted returns and target sales rebate provisions in a contract in order to coordinate the retailer who makes three decisions simultaneously. We use an additive demand model to show that there exist the optimal pricing, sales effort, and ordering decisions uniquely in the centralized supply chain.
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