Supply chain coordination and decisions under effort-dependent demand and customer balking behaviour

Abstract

The paper explores supply chain coordination under a sales effort-dependent demand and customer balking scenario and analyses the impacts of revenue- and cost-sharing contracts on the decisions of supply chain members. This paper subsequently develops a two-echelon supply chain consisting of one supplier and one retailer and examines two models that incorporate customer balking and sales efforts: in one model, the retailer offers a revenue sharing-only contract, and in the other model, the retailer and the supplier bargain on the revenue and cost-sharing contract. The results show that the revenue- and cost-sharing contract can coordinate the decentralised supply chain better than it can coordinate a centralised supply chain and that the effects of customer balking on the supply chain are clear; when customer balking occurs, the probability of a sale occurring can increase the profit of the supply chain, while the threshold of inventory and the sales effort can improve the marketing demand.