Coordinating a two level supply chain with waste-averse preferences based on Revenue-Sharing contract

Abstract

Revenue-sharing (RS) contract is a kind of mechanism to improve the performance or to achieve the perfect coordination of supply chain (SC). In this paper, considering that the supplier and the retailer have waste-averse decision bias respectively, we propose a model of an SC contract aimed at coordinating a two-level SC, which is based on revenue sharing mechanism and stochastic customer demand. Then by analyzing the model, the paper explains that how the waste-averse decision bias of the supplier and the retailer influences the optimal order quantity, the quota of revenue sharing and the coordination of SC. The result shows: when the retailer has waste-averse decision bias, the wholesale price that supplier offers the retailer and the quota that the retailer gives his revenue to the supplier will decrease as the retailer's waste-averse decision bias increases; when the supplier has waste-averse decision bias, the wholesale price that he offers the retailer and the quota that the retailer gives his revenue to him will increase as his waste-averse decision bias decreases.