A Coordinated Revenue-Sharing Contract for a Two-Stage Supply Chain with Linear Stepwise Inventory Holding Costs

Abstract

In this paper, the authors focus on examining the coordination mechanisms for a two-stage supply chain comprising one supplier and one retailer. The authors consider such a channel relationship that the transaction quantity between the two members is sensitive to the supplier’s inventory level and that the supplier’s unit inventory holding cost has a linear stepwise structure. They devise a coordinated revenue-sharing contract with bargaining so that each party’s respective profit is better than that resulted from the simple sequential optimization mechanism. The key contract parameters, namely the supplier’s inventory level and the retailer’s revenue-sharing fraction, are obtained and analyzed. Numerical illustrations of the contracts are given and shed lights on how the supply chain should coordinate in order to gain better performance.