Revenue sharing contract in competitive supply chain network coordination: location based on VMI policy and bullwhip effect

Abstract

Online shopping advances have made the timely delivery of goods to the place of the buyer a necessity. This study considers a significant and rival supplier with a retailer network, and we use Stackelberg game to solve the problem. The major supplier (the leader) is connected to retailers and covers their orders through a Vendor Management Inventory policy and revenue-sharing contract. The major supplier pays fines in case of any shortage, and minimises the loss of retailers in the network through good warehouse locations. The rival supplier (the follower) signs contract with some retailers encouraging them to receive their orders to achieve higher utility. Hence, the expected utility function of both suppliers is calculated, and their strategies are measured at the equilibrium point in a zero-one model. Furthermore, a better view of major decisions by using bullwhip effect (BWE) analysis in the competition between main and rival suppliers is done. Results indicate a lower BWE when the actual order of the retailer equals the retailer's order from the supplier's perspective, and the demand variance ratio is less than the contracts’ profit variance ratio. Moreover, it is possible to control the demands variance ratio by controlling the ratio of contracts’ profit.

KEYWORDS:

• Competitive supply chains
• contract optimization
• VMI
• bullwhip effect
• Stackelberg game

Data availability

Authors agree to make data and materials supporting the results or analyses presented in this paper available upon reasonable request.

Disclosure statement

No potential conflict of interest was reported by the author(s).