Channel coordination for multi-stage supply chains with revenue-sharing contracts under budget constraints

Abstract

Real-life situations show that revenue-sharing (RS) contracts used in multi-stage supply chains have more complex structures than those that have been studied in recent research. In this paper, we study RS contracts in multi-stage supply chains where some members work with more than one upstream member. This general supply chain structure closely resembles those in actual practice under RS contracts. The literature on supply chain contracts has not adequately addressed contract design for supply chains with members who face budget constraints. We show that the RS contract could fail to coordinate supply chains when members are under particular budget constraints. In response, we propose a revenue-sharing with budget constraints (RSB) contract that adds no administrative cost. A properly designed RSB contract can be used to achieve supply chain coordination and to arbitrarily allocate profits in multi-stage supply chains. Our numerical results provide insights into ways supply chain coordination can be achieved under budget constraints through the RSB contract.