Channel coordination under consignment and vendor-managed inventory in a distribution system

Jen Ming Chen, I. Chen Lin, Hung Liang Cheng

Research output: Contribution to journalArticlepeer-review

78 Scopus citations

Abstract

This paper deals with the problem of coordinating a vertically separated distribution system under vendor-managed inventory and consignment arrangements. We formulate the profit-maximization problem and carry out equilibrium analysis under cooperative and non-cooperative settings. In addition, a revenue-sharing scheme joint with a side-payment is proposed, which leads to Pareto improvements among channel participants. Our analysis reveals that the non-cooperative decentralization tends to price higher and stock less, which leads to a lower channel-wide profit. The consistent bias can be rectified by the dominant, cooperative wholesaler or by using the proposed two-part revenue-sharing mechanism.

Original languageEnglish
Pages (from-to)831-843
Number of pages13
JournalTransportation Research Part E: Logistics and Transportation Review
Volume46
Issue number6
DOIs
StatePublished - Nov 2010

Keywords

  • Channel coordination
  • Consignment
  • Deterioration
  • Inventory-level dependent demand
  • Pricing
  • Vendor-managed inventory

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