Supply chain coordination by revenue sharing based on continuous quantity discount function

Abstract

This paper investigates the mechanism of revenue sharing (RS) among the actors in a two-stage supply chain (SC) with a decentralized decision process. The SC consists of a manufacturer, and a distributor, and in the chain, profit is shared proportional to the actors' investment amount or effort level, and sharing profit equally means sharing risk. Whether they cooperate depends on sensitivity coefficients of market demand function and quantity discount function. In a numerical example, the actors' common preference interval about profit fraction is exploited and a new RS contract is proposed, and the total SC profit and the consumer surplus (CS) with the new method are proved higher than that in the competitive market scenario. This paper also implies that direct marketing is of a higher profit level compared with distribution, however, transformation of sales mode from distribution into direct marketing needs gradual transition with the new contract, and sales mode analyses of Lenovo Company, Dell Company and Compad Company are provided to illustrate this point. © 2010 IEEE.