Benefit and risk analysis of consignment contracts

Wei Hu (), Yongjian Li () and Wen Wang ()
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Wei Hu: Nankai University
Yongjian Li: Business School of Nankai University
Wen Wang: Business School of Nankai University

Annals of Operations Research, 2017, vol. 257, issue 1, No 27, 659 pages

Abstract: Abstract Consignment contracts are widely implemented in virtual market. We consider a supplier produces product and sells it to market through a retailer by consignment contract. In a unified model assumption, considering random demand and customers’ uncertain return behavior, we focus on two popular consignment contracts: vendor managed consignment inventory contract and consignment contract with revenue sharing. Comparing analytical results between the two contracts, we find that (1) the retailer and whole supply chain will benefit more from the consignment contract with revenue sharing, (2) the supplier will prefer to vendor managed consignment inventory contract, (3) both the retailer and supply chain will share a higher risk under the consignment contract with revenue sharing, the supplier’s shares of risk and profit highly depend on his share of the total expected cost, (4) all the profit and risk functions are decrease in uncertainty of customer return. We believe that these managerial insights can advance the understanding about use of the two consignment contracts in supply chain management with both benefit and risk considerations.

Keywords: Consignment contract; Revenue sharing; Vendor managed consignment inventory; Risk analysis; Supply chain management (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-015-1919-0

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