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

Jen-Ming Chen, I-Chen Lin and Hung-Liang Cheng

Transportation Research Part E: Logistics and Transportation Review, 2010, vol. 46, issue 6, 831-843

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.

Keywords: Channel; coordination; Vendor-managed; inventory; Consignment; Inventory-level; dependent; demand; Pricing; Deterioration (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (19)

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