KEYWORDS
Inventory, Revenue Sharing, Return Policy, Bi-Level Decisions
INTRODUCTION
In recent years, product life cycle has shortened and demand becomes more uncertain. These conditions may result in overstocking or shortage for the downstream retailers, and they will affect the profit of the whole supply chain. In the long run, the manufacturer and the retailer will lose their competitiveness. In viewed of this short coming, strategic cooperation by equitable sharing contract can be achieved through a win-win strategy for the manufacturer and the retailer.
In this paper, we consider two contract strategies such as revenue sharing and return policy. Revenue sharing strategy means the supplier motivates the retailer to increase his order quantity with preferential price. After the products are sold out, the retailer must return a certain percentage of the profit to the supplier. Because of uncertain demand, shortage cost may incur when the demand is greater than the order quantity. This can also be regarded as a risk. Hence, shortage cost sharing is relative to the revenue sharing concept. If the seller and the buyer share the shortage cost as well as the revenues, they can establish a better partnership.
In this research, we develop a contract strategy using bi-level decision making for stochastic demand environments. Manufacturer is the leader and provides its strategy and decision variable to its follower, i.e. the retailer. After the retailer responses its decision variable, the manufacturer will use the information to coordinate the strategy.