Supply Chain Coordination with Contracts and Discount Programs in Different Channel Leadership Structures

Project: Research

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In different supply chain coordination models, the manufacturer offers different types of trading contracts to different retailers for selling its products. With regard to the offered contract, the retailer makes two basic decisions: the quantity of the product it purchases from the manufacturer before the selling season, and the retail price at which it sells the product during the season. In a conventional sales agreement called price-only contract, the manufacturer charges a wholesale price per unit to the retailer. To gain significant performance improvement, revenue-sharing contract has become more prevalent in some industries, under which the manufacturer charges a lower unit wholesale price and shares a portion of the revenue the retailer generates. In the traditional manufacturer-retailer channel structure, the manufacturer is the leader, who has the ability to influence its retailers’ decisions through different channel strategies, while retailers are passive followers. With the emergence of large retail chains like Wal-Mart and Carrefour, channel leadership is gradually shifting from manufacturers to retailers. Moreover, the modern supply chain management always focuses on improvement of coordination for better matching supply and uncertain demand, mitigating ill-effects of demand variation, and overcoming the lack of actual sale. An innovative market campaign called advance booking discount (ABD) program has also began to emerge, in which customers can commit their orders at a discount price prior to commencement of the selling season.We propose to develop a series of analytical frameworks and models for formulating pricing and ordering decisions under various contracts, programs and channel leadership structures. We will identify, under what conditions, revenue-sharing contract is beneficial, or not beneficial, to manufacturers and/or retailers. Moreover, we will analyze effects of channel leadership of either the manufacturer or the retailer, on the expected profits in a two-echelon supply chain. After comprehensively analyzing properties of parameters and criteria, we will evaluate how cooperation and competition among manufacturers (and retailers) influence channel members’ decisions, in response to uncertain demand and profit variability. Then, we will examine whether it is worthwhile for manufacturers to offer the ABD program to encourage the retailers to order and sell more.


Project number7002520
Grant typeSRG
Effective start/end date1/04/102/11/12