The implications of postponement on contract design and channel performance

Research output: Journal article publicationJournal articleAcademic researchpeer-review

11 Citations (Scopus)

Abstract

We analyze a supply chain consisting of one manufacturer and one retailer under consignment sales with a revenue sharing contract. The manufacturer produces before, but charges price to sell the products through the retailer after the demand curve is revealed. The retailer deducts a fraction from the selling price for each unit sold and remits the balance to manufacturer. We refer to the capability whereby firms delay price decision and make sales in response to actual market condition as postponement. We find that, when market demand admits a multiplicative structure, the revenue share and allocation of channel profit between the firms when they have postponement capability are similar to when they do not have such capability. Postponement improves the profits of individual firms. Such an effect is more phenomenal in the centralized system than in decentralized system, and when the market demand is more sensitive to price changes. However, it causes the profit loss, defined as the percentage deviation of channel profit in the decentralized system relative to the centralized system, to worsen, and the gap widens with retailer's sales cost. When the demand has an additive structure, while the roles of postponement on firms' decisions differ slightly from those under the multiplicative structure, the structure of the strategic interactions between firms and relative channel performance are not significantly altered.
Original languageEnglish
Pages (from-to)356-366
Number of pages11
JournalEuropean Journal of Operational Research
Volume216
Issue number2
DOIs
Publication statusPublished - 16 Jan 2012

Keywords

  • Consignment
  • Postponement
  • Revenue sharing
  • Supply chain management

ASJC Scopus subject areas

  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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