The optimal consignment policy for the manufacturer under supply chain co-ordination

Abstract

This study analyses an optimal consignment policy comprising a fixed fee and a per-unit commission. The manufacturer has to offer its retailers a mutually beneficial consignment scheme that affects the whole supply-chain performance. The focus is on determining the optimal consignment policy for a manufacturer and the resulting supply-chain coordination. Without loss of generality, an analytical model is developed with a closed-form solution, enabling analysis of the performance of a consignment policy. The theoretical analysis shows that the consignment with the highest supply-chain profits depends on a fixed fee and a per-unit commission. The analysis also demonstrates that a consignment policy not only generates a higher manufacturer's profit than the traditional system, but also coordinates the retailer to achieve a large supply-chain profit. As the demand is sensitive to the markdown, the consignment policy becomes more efficient, and the manufacturer's realized profit increases.

Keywords:

• Consignment
• Consignment policy
• Supply-chain coordination
• Commission
• Newsboy problem