Pricing and inventory decisions in a vendor managed inventory system with revenue sharing contract

Abstract

In this paper, we design a revenue sharing contract to coordinate pricing and inventory control decisions in a serial supply chain consisting of one supplier, one manufacturer and one retailer. We assume that the retailer faces Poisson demand and his unsatisfied demands will be lost. The retailer applies one-for-one period policy in which he constantly places an order for one unit of product to the manufacturer in a predetermined time interval which results in a deterministic demand for the manufacturer. Solution procedures are developed to find the equilibrium in the Vendor Managed Inventory (VMI) program with a revenue sharing contract, in which no party is willing to deviate from for the sake of maximizing his own profit. Furthermore, we formulate the total profit of the system and obtain the optimal retail price and order cycle for the retailer and the inventory policy of manufacturer which maximizes the supply chain's total profit and at the end we will highlight the revenue sharing contract performance.

Optimizing service level, price, and inventory decisions for a supply chain with retailers’ competition and cooperation under VMI strategy

“…While earlier studies did not use a game theory approach, the Stackelberg game is used in some works to describe the competitive relationships between the manufacturer and retailers. This methodology is widely used in the VMI system [3,6,19,20,27,37,43,44,51,57,70,71,73,75]. In VMI models, the manufacturer manages the finished product inventories for all the retailers as the leader dominating the SC, and the retailers are followers.…”

“…To facilitate modeling, most of the research in the literature assumed a fixed demand [5,16,18,25,26,28,30,31,33,34,36,38,40,42,46,47,50,52,53,57,58,67,74]. However, real-life demands are a (linear or nonlinear) function of the price [3,6,19,27,29,37,43,44,51,57,70,71,73,75]. For example, Yu et al [70] explored a VMI system with several retailers and a single manufacturer in which each retailer's demand followed the Cobb-Douglas demand function.…”

Partially Smoothing and Gradient-Based Algorithm for Optimizing the VMI System with Competitive Retailers under Random Demands

“…Huang et al [33] considered that the stochastic demand depends on product quality level and marketing effort level. Haji et al [34] assumed that the retailer's demand satisfies the Poisson distribution. Zhang et al [35,36] proposed two stochastic programming models to formulate the management problem of global supply chains in the case that product demands are continuous random variables.…”

An agent-based simulation for a trade-off between frequency and depth in retail price promotion strategy

“…Both studies were conducted in a dual-channel business environment. Different approaches to the relationship between wholesalers and retailers are described in the study of Haji et al (2018), which tries to determine the appropriate contract design in the management of Vendor Managed Inventory (VMI) and mutually beneficial revenue sharing. Although these studies provide valuable insight into pricing decisions, they are limited to the wholesaler-retailer relationship.…”