Quantifying the Bullwhip Effect in Two-Echelon Competitive Supply Chains Considering Revenue Sharing Contract, Price Volatilities, and Commodity Substitution Policy

We consider under what conditions a revenue sharing contract is most effective at improving system efficiency relative to a simple wholesale price contract. Using a behavioral laboratory approach, we investigate how a supplier's individual differences in risk aversion and fairness concerns influence how they set the pricing parameter(s) of a contract. We find that risk-neutral self-interested suppliers were able to improve the system and their own profits significantly under revenue sharing compared to wholesale pricing. However, individual behavioral factors of risk aversion or fairness preferences often made the more complicated revenue sharing contract either ineffective or unnecessary. Specifically, given a fairness-minded supplier, the simple wholesale price contract is comparably efficient to the revenue sharing contract set by a risk-neutral supplier and we find the coordinating contract is unnecessary. Conversely, given a strongly risk-averse supplier with no concerns for fairness a revenue sharing contract is ineffective in overcoming double marginalization.

Revenue-sharing contracts in an N-stage supply chain with reliability considerations

Revenue-sharing (RS) contracts are a common approach in incentivizing innovation of upstream suppliers by addressing the uneven profit distribution between upstream and downstream firms. Considering the possible overconfidence characterizing decision makers in the supply chain, we investigate the effect of the RS contract and the tendency of overconfidence of supply chain members on the investment in R&D of key components of products in the context of an upstream supplier that is a leader in the R&D and production of key components. We find that regardless of the bargaining power of either party, an RS contract can increase the R&D investment in key components. Regarding the effects of overconfidence of either the downstream manufacturer or upstream supplier, an RS contract can increase the R&D investment in key components. Supplier (manufacturer) overconfidence can harm their own profits but increase the profits of the manufacturer (supplier), and when the level of overconfidence is below a certain threshold, the damage to their own profits is less than the increase in each other’s profits, thus benefiting the whole supply chain. In addition, we also find a joint effect of RS contracts and overconfidence: when the bargaining power of the supplier is low, the RS contract has a certain compensatory effect on the loss of their own profits caused by overconfidence.

Revenue-Sharing (RS) contract is a kind of mechanism to improve the performance or to achieve the perfect coordination of supply chain (SC). In view of the fact that an one- supplier one-retailer supply chain faces stochastic effort and price-dependent demand, a model of the revenue-sharing contract is established. The paper shows: whether the retailer or the supplier bears the cost of effort alone, RS contract can not coordinate SC; only when the retailer and the supplier both bear the cost of effort, can RS contract coordinate SC. The share that both sides bear the cost of effort is precisely equal to the share that the retailer gives his revenue to the supplier.

Considering a supply chain with the risk-neutral supplier and the risk-averse retailer, the revenue sharing contract is studied. Firstly, the risk-averse behavioral preference of the retailer over random profit is represented in a Conditional Value-at-Risk (CVaR) framework. Then we obtain the supply chain's optimal solution and study the property of contract parameter. It is analyzed that the degree of risk aversion is influential to the contract parameter. Finally, an illustrative example is given to demonstrate that the revenue sharing contract may not coordinate the operation of the supply chain when the retailer is risk averse. Under a revenue-sharing contract, a retailer pays the supplier a wholesale price for each unit purchased, plus a percentage of the revenue the retailer generates. Such contracts have become more prevalent in the network economy. Dana and Spier (2001) showed that revenue sharing is valuable in vertically separated industries in which demand is either stochastic or variable, downstream inventory is chosen before demand is realized and downstream firms engage in intra-brand competition. Gerchak and Wang (2004) investigated a vendor-managed inventory with revenue sharing and found that the assembler can achieve channel coordination and increase the profits of all parties involved by using the revenue sharing contract. Giannoccaro and Pontrandolfo (2004) proposed a model of the supply chain contract aimed at coordinating a three-stage supply chain, which is based on the revenue sharing mechanism. Cachon and Lariviere (2005) studied the coordination of the fixed-price news vendor problem and price-setting news vendor problem in a neutral risk situation, and they demonstrated that revenue sharing coordinates both of the cases and arbitrarily allocates the supply's profit. The model in the above mentioned papers assumes that the agents in the supply chain are risk neutral, and maximize their respective expected profits. However, these papers do not take into consideration the issue of a supply chain consisting of risk-averse agents. It has been pointed out that maximizing the expected profit is not satisfactory from a practical point of view, and the agents in the real world are more concerned with other objectives. There are a number of papers containing the situation with one or more risk-averse agents, such as Lau and Lau (1999), Tsay

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.

This paper addresses interconnection contracts in content provisioning scheme with partial cloud migration. Model for traffic workload of such scheme based on content popularity factor is introduced. Monte Carlo simulation for bandwidth demand estimation is used. Cost analysis of content provider’s resources utilization regarding average requests’ rejection rate is observed. The performance analysis of content provider’s incentive for partial cloud migration is applied. Three interconnection contracts are analysed: Revenue Sharing, Cost Sharing and Wholesale Price contract. Obtained results show that partial cloud migration can reduce both content provider’s costs and average requests’ rejection rate. Under observed constellation, Revenue Sharing contract may represent satisfying solution for both providers.DOI: http://dx.doi.org/10.5755/j01.eie.22.6.17230

Smart logistics transformation collaboration between manufacturers and logistics service providers: A supply chain contracting perspective

A supply chain can be defined as a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Different entities in a supply chain operate subject to different sets of constraints and objectives under different industrial environments. Each member of a decentralized supply chain has its own decision rights to optimize its costs or benefits. Recently, the topic of decentralized supply chain modelling and analysis has been of great interest. Most of the studies on decentralized supply chain modelling have focused on designing a mechanism to fully integrate these individualistic decisions in order to ensure that the decision outcome of an individual member of the supply chain is in accordance with the decision outcome of the entire supply chain (Cachon & Lariviere, 2001; Moinzadeh and Bassok, 1998; Tsay et al., 1999). Perfect coordination mechanisms allow the decentralized supply chain to perform as well as a centralized one, in which all decisions are made by a single entity to maximize supplychain-wide profits. Several types of contractual agreements which may determine incentive mechanisms to integrate a decentralized supply chain, inclunding profit sharing (Atkinson, 1979; Jeuland and Shugan, 1983), consignment (Kandel, 1996), buy-backs (Pasternack, 1985; Emmons & Gilbert, 1987), quantity-flexibility (Tsay & Lovejoy, 1999), revenue sharing (Giannoccaro & Pontrandolfo, 2004; Cachon & Lariviere, 2005; Chang & Hsueh, 2006, 2007), revenue allocation rules (Shah et al., 2001), and quantity discounts (Dolan, 1987), etc. One of these contractual agreements, revenue sharing is a mechanism that is gaining popularity in practice and in research. Shah et al. (2001) have adopted Nash’s game theory to formulate a model which explores a fair revenue allocation mechanism among the members of a multi-tier supply chain. The model provides a compromise solution of maximized revenue for each individual member of the supply chain under the inventory and production constraints. Giannoccaro & Pontrandolfo (2004) have extended the revenue sharing contract of two-tier to a three-tier supply chain model. Cachon & Lariviere (2005) have presented the revenue sharing contract concept and discussed its influence on supply chain performances. The revenue sharing contract can be described by two parameters, retail price and retailers’ revenue retention ratio. Chang & Hsueh (2006, 2007) extended Giannoccaro & Pontrandolfo (2004) to explore a three-tier supply chain integration problem

Supply chain coordination can be achieved by adopting the revenue sharing contract. Typically in this literature, market parameters such as demand distribution and selling price are exogenous. However, incorporating these factors, we can provide an excellent vehicle for how the revenue sharing contract interacts with the newsvendor problem to influence decision-making in the supply chain. This problem is similar to the classic revenue sharing contract-design problem, except: (a) demand distribution is selling price independent; (b) both the selling price and stocking level are decision variables. We consider two different ways in which selling price affects the demand distribution: the additive fashion and multiplicative fashion. We present methodology by which the optimization problem with two decision variables can be simplified to a maximization problem over a single variable. We explore conditions that may lead the revenue sharing contract with the newsvendor problem to achieve perfect channel coordination for the additive fashion and multiplicative fashion, respectively. The results indicate that the revenue sharing contract with the newsvendor problem cannot achieve perfect coordination.

In this paper, a revenue sharing contract is designed to coordinate a distribution channel where the demand of the product is ramp-type price and effort sensitive. It is shown that traditional revenue sharing contract does not coordinate the system. As an alternative, two new mechanisms are proposed (i) revenue sharing with coordinated effort of the retailer alone and (ii) both revenue and effort sharing contract. In addition, a crucial modification of revenue sharing fraction is also proposed. To enhance the applicability of revenue sharing contract, the contract parameters are determined by using bi-level multi-objective fuzzy goal programming technique where manufacturer sets the wholesale price greater than the marginal cost. Numerical examples are presented to illustrate all the models.

In some retail contexts, retailers can often stimulate product sales by offering a price discount or allocating more shelf or display space. The retailer's shelf-space and pricing decisions can affect not only the retailer's profitability but also the supplier's profitability. This paper investigates the impact of revenue sharing contracts on the retailer's shelf-space and pricing decisions. Consider a two-echelon supply chain with a supplier supplying a certain product to a retailer facing non-linear inventory holding costs and the customer demand that depends on both the price of the product and the shelf space allocated. We firstly provide the equilibrium of the optimal decisions of the retailer and the supplier when no revenue sharing contract is offered. Then we consider the case where the supplier replenishes the retailer's shelf under a revenue sharing contract. It is shown that a properly designed revenue sharing contract can increase the profit of the manufacture, comparing to the benchmark case. Finally we conclude that revenue sharing contracts still can not coordinate the supply chain.

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 supplier and retailer both has stockout-averse preferences, we propose a model of an SC contract aimed at coordinating a two-stage SC, which is based on revenue sharing mechanism, and the customer demand is stochastic. Then by analyzing the model, the paper explains that how the decision bias of supplier and retailer influences the optimal order quantity and supply chain coordination. The result shows: when retailer and supplier has different decision bias (waste-averse and stockout-averse), only the coefficient of the SC members' decision bias satisfies some functions, can the SC based on RS contract coordinate, and the parameters of RS contract are increasing (decreasing) function of their decision bias coefficient.

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 supplier and retailer has risk-averse preferences respectively, we propose a model of an SC contract aimed at coordinating a two-level SC, which is based on revenue sharing mechanism, and the customer demand is stochastic. Then by analyzing the model, the paper explains that how the risk-averse preferences of supplier and retailer influence the optimal order quantity, the optimal wholesale price, the quota of the revenue sharing and SC coordination. The result shows: if the risk-averse of the retailer (or the supplier) can be controlled within the specific limits, the RS contract also can coordinate SC by tuning its parameters.

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.