Searching for the best profit-sharing allocation in multi-echelon supply chain

Abstract

In this paper, we propose coordination procedures for a multi-echelon supply chain in which the appropriate profit-sharing rate is allocated for each supply chain member. The search process is first developed to maximise the total compromised profit of a two-member supply chain. From the achieved profit-sharing rate, the best ordering quantity is also determined. Then, a cascading procedure is also proposed for searching the best profit-sharing ratios for each member in the multi-echelon supply chain. Our proposed procedures are validated by comparing it with the fixed profit-sharing scheme. We have also investigated different scenarios to test the effect of demand variations on total cost at different profit-sharing rates. The obtained results are promising. [Submitted: 27 October 2020; Accepted: 22 January 2022]