Supply Chain Coordination through a Revenue-Sharing Contract with Two Kinds of Fuzzy Demand

Abstract

Revenue-sharing contract is used in many industries. However, it is hard to guarantee that the retailer report the sales truly to the supplier. In fact, the retailer has both incentive and opportunity to underreport the sales to reduce the sharing revenue to the supplier. What the supplier should do when meeting with the opportunistic retailer(s)? This paper studies a kind of opportunistic phenomenon in a supply chain in which a supplier sells to a retailer under a revenue-sharing contract. Two settings are discussed. The first one is that the retailer does not, or cannot underreport the sales to the supplier to share when the supplier design a strict auditing mechanism under which no lies allowed. The second one is that the retailer can underreport the sales to the supplier to share under another soft auditing mechanism. Due to the uncertainty of market demand, it is characterized by a fuzzy variable. Interestingly, we find that the supplier's profit is higher in the second setting than the one in the first setting. We hope that the conclusion drawn in the paper can provide a new viewpoint to help the supplier to solve the problem when meeting with an opportunistic retailer in a supply chain under a revenue-sharing contract in uncertain environments.

Research on supply chain performance based on retailers’ fairness concerns: Wholesale prices versus cost sharing of efforts

“…Bi, He, and Luo et al (2013) demonstrated that a sales-rebate contract regarding fairness broadens the voluntary cooperation prospects and increases the overall profit of the supply chain [ 33 ]. Some other coordinating contracts with fairness concerns have also been fully characterized in different contexts, such as revenue-sharing contracts (Li Q et al [ 29 ]; Wang X et al [ 34 ]; Pu X J et al [ 35 ]) and buy-back contracts (Wei G et al [ 36 , 37 ]). Although these articles considered more complex issues, the majority of them also simplified the functions that characterize fairness concerns.…”

Performance of three-echelon supply chain under uncertainty: influence of contract sequence and individual rationality

“…However, alignment of individual objectives of SC agents in a multi-echelon SC is more complicated (Sang, 2016a, b). As two adjacent agents choose their contractual agreement independently and separately, determining coordination strategy for a multi-echelon SC becomes more complex (Wang et al. , 2014; Zhao et al.…”

A consignment stock policy for a two-level supply chain with imperfect quality items

“…Such contracts can be summarized to include quantity flexibility contracts, backup agreements, buy-back or return policies, incentive mechanisms and revenue sharing contracts. Wang, Zhao and Tang (2008) focus on revenue-sharing in a supply chain with one retailer and one supplier considering fuzzy demand. Wang, Zhao and Tang (2008) consider two kind of fuzzy demand: iso-price elastic demand and linear demand.…”

“…Wang, Zhao and Tang (2008) focus on revenue-sharing in a supply chain with one retailer and one supplier considering fuzzy demand. Wang, Zhao and Tang (2008) consider two kind of fuzzy demand: iso-price elastic demand and linear demand. They conclude by stating that future work considering more complex fuzzy demands should be considered.…”