Contract Mechanisms for Revenue Sharing in a Supply Chain

One of the most important things in pursuit of supply chain management is to prevent sub-optimization caused by decentralized decision making over the various entities. As a solution of the issue, supply chain coordination approach has frequently been used. However, a coordinated supply chain might fail to provide additional profit to one of the players. A supply chain contract can be to achieve the same profit of supply chain coordination and to improve the benefit of all entities involved. In this paper, we address the model of supply chain contract, which is a combination contract of a quantity discount contract based on a revenue sharing contract, which is used to coordinate under a multi-echelon supply chain facing a stochastic customer demand. It is shown that the proposed contract can achieve supply chain coordination and win-win situation.