Coordinating a manufacturer–retailer chain under time and price dependent demand rate

Abstract

This paper deals with the coordination of a supply chain that consists of a manufacturer and a price setting retailer. The manufacturer offers a single product to the retailer, who faces time and price sensitive demand. Under explicit cost information, optimal quantity–price pairs are derived for an integrated scenario and a decentralized scenario by considering the manufacturer as the Stackelberg leader. It is shown that a conventional revenue sharing contract does not coordinate the chain. Then a coordination contract is used – with a fraction of the retailer's generated revenue, the manufacturer also shares a fraction of the retailer's cost and it is shown that the coordination contract cuts out channel conflict and leads to a win–win result. The revenue sharing fraction, wholesale price and range of cost sharing fraction, within which a win–win result is possible, are determined in exact form. A numerical example is presented to explain the proposed model.

Keywords:

• coordination
• time and price dependent demand
• revenue sharing contract
• revenue and cost sharing contract

Acknowledgements

The author is thankful to the Editor in Chief and two anonymous referees for their valuable comments for the improvement of the paper.