Supply chain coordination and decision making under consignment contract with revenue sharing

Consignment contract with revenue sharing has been widely applied in many industries and is especially popular in on-line marketplaces. In this paper we consider a supply chain with an upstream manufacturer and a downstream retailer where a single-period product is produced and sold. The manufacturer chooses the delivery quantity and the retail price, and the retailer sets the revenue shares. Utilizing Nash bargaining model, a cooperative game model is developed to implement profit sharing between the manufacturer and the retailer to achieve their cooperation. When the manufacturer and the retailer are assumed to be risk-neutral, under a very mild restriction on the demand distribution, the decentralized supply chain can be perfectly coordinated and both the manufacturer and the retailer can earn more in cooperation. In this paper, we also analyze how the supply chain system parameters impact the optimal supply chain decisions and the supply chain performance. (C) 2008 Elsevier B.V. All rights reserved.