Supply Chain Coordination with Both Revenue-sharing Policy and Buy-back Policy Applying Gradual Management for Uncertain Elements

Abstract

To gain cost advantage and market share, many firms implement various initiatives such as outsourced manufacturing and product variety. These initiatives are effective in a stable environment, but they could make a supply chain more vulnerable to various types of disruption caused by uncertain economic cycles, consumer demands, and natural and man-made disasters. In recent years, manufacturers and retailers are implementing various policies to coordinate distribution channels more effectively. For example, there are buy-back policy, revenue-sharing policy, quantity-discount policy and so on. We consider a standard newsvendor problem in a single manufacturer and retailer, and deal with a mathematical programming problem to maximize the overall expected profit in the supply chain. It is shown that our model's policy can be completely eliminated "double marginalization". In previous papers, they were limited to only one policy. But in general, we must consider many contract policies to coordinate the overall expected profit in all domains of each member's expected profit. On the other hand, in previous papers, when all of the members in the supply chain applied the policy for uncertainty, they completely guarantee each other. However, we need not guarantee 100% for uncertainty. In this paper, we discuss supply chain coordination with gradual buy-back and revenue-sharing occurring simultaneously. The main results are obtained and illustrated by numerical examples.