The optimal consignment policy for the retailer facing multiple manufacturers

Abstract

Consignment is becoming an increasingly popular practice to supply chain management. We consider the optimal consignment policy for the retailer facing multiple manufacturers. We model the decision making of the retailer and the manufacturers as a Stackelberg game: The retailer, acting as the leader, offers the manufacturers a uniform consignment contract, which specifies the slotting fee and the percentage. The manufacturers, acting as the follower, choose whether to use the retailer. We formulate the retailer's decision process as a mixed integer programming (MIP) problem and solve it by graphical method. We propose the algorithm to determine the optimal consignment policy for monopoly retailer. This policy and each manufacturer's corresponsive behavior to it constitute the Stackelberg equilibrium. The numerical example shows that this optimal policy can improve the retailer's total charge.