COORDINATING TWO-ECHELON SUPPLY CHAINS UNDER STOCK AND PRICE DEPENDENT DEMAND RATE

Coordination is imperative for improving supply chain performance. In this paper, we focus on coordination of a two-echelon supply chain consisting of a manufacturer and a price-setting retailer, which operates for a single product. Customer demand is influenced by retailer's instantaneous inventory level and selling price. The integrated system and the decentralized scenario, by considering manufacturer as the Stackelberg leader, are discussed. It is shown that conventional revenue sharing contract cannot coordinate the system but revenue and cost sharing (RCS) contract is able to coordinate the system and leads to a win-win outcome. The key contract parameters-cost sharing fraction, along with revenue sharing fraction and wholesale price are determined under explicit and implicit information of retailer's cost structure. Finally, it is shown that range of cost sharing fraction that leads to win-win situation is independent of the format of cost structure of retailer. Numerical examples are provided to illustrate the development of the model.