IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v207y2010i2p897-905.html
   My bibliography  Save this article

Channel coordination in a consignment contract

Author

Listed:
  • Zhang, Dengfeng
  • de Matta, Renato
  • Lowe, Timothy J.

Abstract

With the emergence of virtual market places, consignment selling has been thriving at an unprecedented pace. It has been shown in the literature that inefficiency exists in a decentralized consignment channel with a single revenue share agreement. In our study, we analyze contracts observed in practice that contain bonus or side payment terms, and examine whether they can promote better coordination between the supplier and the retailer. We found that no multi-tier Bonus system can fully coordinate the consignment channel. However, fine adjustments of bonus parameters can bring the channel close to full coordination. Additionally, we found revenue sharing with side payment contracts not only fully coordinate the channel, but they can also be customized to meet the needs of small, medium and large suppliers for extra retailer services such as warehousing and transportation. Managerial insights on how to design the contracts from the supplier, retailer and channel perspectives are discussed in the paper.

Suggested Citation

  • Zhang, Dengfeng & de Matta, Renato & Lowe, Timothy J., 2010. "Channel coordination in a consignment contract," European Journal of Operational Research, Elsevier, vol. 207(2), pages 897-905, December.
    • Handle: RePEc:eee:ejores:v:207:y:2010:i:2:p:897-905
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(10)00383-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Burer, Samuel & Jones, Philip C. & Lowe, Timothy J., 2008. "Coordinating the supply chain in the agricultural seed industry," European Journal of Operational Research, Elsevier, vol. 185(1), pages 354-377, February.
    2. Leng, Mingming & Zhu, An, 2009. "Side-payment contracts in two-person nonzero-sum supply chain games: Review, discussion and applications," European Journal of Operational Research, Elsevier, vol. 196(2), pages 600-618, July.
    3. Gary D. Eppen & Ananth. V. Iyer, 1997. "Backup Agreements in Fashion Buying---The Value of Upstream Flexibility," Management Science, INFORMS, vol. 43(11), pages 1469-1484, November.
    4. Gérard P. Cachon, 2004. "The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts," Management Science, INFORMS, vol. 50(2), pages 222-238, February.
    5. Georgia Perakis & Guillaume Roels, 2008. "Regret in the Newsvendor Model with Partial Information," Operations Research, INFORMS, vol. 56(1), pages 188-203, February.
    6. Li, Sijie & Hua, Zhongsheng, 2008. "A note on channel performance under consignment contract with revenue sharing," European Journal of Operational Research, Elsevier, vol. 184(2), pages 793-796, January.
    7. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    8. Nicholas C. Petruzzi & Maqbool Dada, 1999. "Pricing and the Newsvendor Problem: A Review with Extensions," Operations Research, INFORMS, vol. 47(2), pages 183-194, April.
    9. Dawn Barnes-Schuster & Yehuda Bassok & Ravi Anupindi, 2002. "Coordination and Flexibility in Supply Contracts with Options," Manufacturing & Service Operations Management, INFORMS, vol. 4(3), pages 171-207, May.
    10. Terry A. Taylor, 2001. "Channel Coordination Under Price Protection, Midlife Returns, and End-of-Life Returns in Dynamic Markets," Management Science, INFORMS, vol. 47(9), pages 1220-1234, September.
    11. Dana, James D, Jr & Spier, Kathryn E, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-245, September.
    12. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    13. James D. Dana, Jr. & Kathryn E. Spier, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-245, September.
    14. Yunzeng Wang & Li Jiang & Zuo-Jun Shen, 2004. "Channel Performance Under Consignment Contract with Revenue Sharing," Management Science, INFORMS, vol. 50(1), pages 34-47, January.
    15. Yunzeng Wang, 2006. "Joint Pricing-Production Decisions in Supply Chains of Complementary Products with Uncertain Demand," Operations Research, INFORMS, vol. 54(6), pages 1110-1127, December.
    16. Andy A. Tsay, 1999. "The Quantity Flexibility Contract and Supplier-Customer Incentives," Management Science, INFORMS, vol. 45(10), pages 1339-1358, October.
    17. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    18. Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    19. Ananth. V. Iyer & Mark E. Bergen, 1997. "Quick Response in Manufacturer-Retailer Channels," Management Science, INFORMS, vol. 43(4), pages 559-570, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Avinadav, Tal, 2020. "The effect of decision rights allocation on a supply chain of perishable products under a revenue-sharing contract," International Journal of Production Economics, Elsevier, vol. 225(C).
    2. Pei, Yiying & Li, Min, 2023. "The effects of information on competition on a hybrid retail platform," International Journal of Production Economics, Elsevier, vol. 260(C).
    3. Hu, Benyong & Meng, Chao & Xu, Dong & Son, Young-Jun, 2018. "Supply chain coordination under vendor managed inventory-consignment stocking contracts with wholesale price constraint and fairness," International Journal of Production Economics, Elsevier, vol. 202(C), pages 21-31.
    4. Pyung-Hoi Koo, 2022. "A Capacity Cost-Sharing Contract for a Two-Stage Supply Chain with a Risk-Averse Supplier under a Bargaining Power," Sustainability, MDPI, vol. 14(4), pages 1-17, February.
    5. Sarker, Bhaba R., 2014. "Consignment stocking policy models for supply chain systems: A critical review and comparative perspectives," International Journal of Production Economics, Elsevier, vol. 155(C), pages 52-67.
    6. Tran, Thanh & Desiraju, Ramarao, 2017. "Group-buying and channel coordination under asymmetric information," European Journal of Operational Research, Elsevier, vol. 256(1), pages 68-75.
    7. B. C. Giri & A. Chakraborty & T. Maiti, 2017. "Effectiveness of consignment stock policy in a three-level supply chain," Operational Research, Springer, vol. 17(1), pages 39-66, April.
    8. Choi, Tsan-Ming & Guo, Shu, 2020. "Is a ‘free lunch’ a good lunch? The performance of zero wholesale price-based supply-chain contracts," European Journal of Operational Research, Elsevier, vol. 285(1), pages 237-246.
    9. de Matta, Renato E. & Lowe, Timothy J. & Zhang, Dengfeng, 2014. "Consignment or wholesale: Retailer and supplier preferences and incentives for compromise," Omega, Elsevier, vol. 49(C), pages 93-106.
    10. Avinadav, Tal & Chernonog, Tatyana & Perlman, Yael, 2015. "The effect of risk sensitivity on a supply chain of mobile applications under a consignment contract with revenue sharing and quality investment," International Journal of Production Economics, Elsevier, vol. 168(C), pages 31-40.
    11. Avinadav, Tal & Chernonog, Tatyana & Ben-Zvi, Tal, 2019. "The effect of information superiority on a supply chain of virtual products," International Journal of Production Economics, Elsevier, vol. 216(C), pages 384-397.
    12. Avinadav, Tal & Chernonog, Tatyana & Perlman, Yael, 2015. "Consignment contract for mobile apps between a single retailer and competitive developers with different risk attitudes," European Journal of Operational Research, Elsevier, vol. 246(3), pages 949-957.
    13. Sung-Moon Jung & Shie-Gheun Koh & Young-Jin Kim & Pyung-Hoi Koo, 2023. "Coordinated Supply Contracts for a Two-Echelon Supply Chain under Given Bargaining Powers," Sustainability, MDPI, vol. 15(17), pages 1-19, August.
    14. Tatyana Chernonog, 2021. "Strategic information sharing in online retailing under a consignment contract with revenue sharing," Annals of Operations Research, Springer, vol. 300(2), pages 621-641, May.
    15. Lei, Quansheng & Chen, Jian & Wei, Xingyu & Lu, Shan, 2015. "Supply chain coordination under asymmetric production cost information and inventory inaccuracy," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 204-218.
    16. Wei Hu & Yongjian Li & Wen Wang, 2017. "Benefit and risk analysis of consignment contracts," Annals of Operations Research, Springer, vol. 257(1), pages 641-659, October.
    17. Adida, Elodie & Ratisoontorn, Nantaporn, 2011. "Consignment contracts with retail competition," European Journal of Operational Research, Elsevier, vol. 215(1), pages 136-148, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Matta, Renato E. & Lowe, Timothy J. & Zhang, Dengfeng, 2014. "Consignment or wholesale: Retailer and supplier preferences and incentives for compromise," Omega, Elsevier, vol. 49(C), pages 93-106.
    2. Adida, Elodie & Ratisoontorn, Nantaporn, 2011. "Consignment contracts with retail competition," European Journal of Operational Research, Elsevier, vol. 215(1), pages 136-148, November.
    3. Leng, Mingming & Zhu, An, 2009. "Side-payment contracts in two-person nonzero-sum supply chain games: Review, discussion and applications," European Journal of Operational Research, Elsevier, vol. 196(2), pages 600-618, July.
    4. Julia Miyaoka & Warren H. Hausman, 2008. "How Improved Forecasts Can Degrade Decentralized Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 547-562, July.
    5. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    6. Yun Fong Lim & Yunzeng Wang & Yue Wu, 2015. "Consignment Contracts with Revenue Sharing for a Capacitated Retailer and Multiple Manufacturers," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 527-537, October.
    7. Biswas, Indranil & Avittathur, Balram, 2019. "Channel coordination using options contract under simultaneous price and inventory competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 123(C), pages 45-60.
    8. Daniel Granot & Shuya Yin, 2005. "On the effectiveness of returns policies in the price‐dependent newsvendor model," Naval Research Logistics (NRL), John Wiley & Sons, vol. 52(8), pages 765-779, December.
    9. Linh, Cao To & Hong, Yushin, 2009. "Channel coordination through a revenue sharing contract in a two-period newsboy problem," European Journal of Operational Research, Elsevier, vol. 198(3), pages 822-829, November.
    10. Chen, Mengmiao & Hu, Qiying & Wei, Hang, 2017. "Interaction of after-sales service provider and contract type in a supply chain," International Journal of Production Economics, Elsevier, vol. 193(C), pages 514-527.
    11. Woonghee Tim Huh & Kun Soo Park, 2013. "Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 60(4), pages 269-293, June.
    12. Fang, Yaner & Shou, Biying, 2015. "Managing supply uncertainty under supply chain Cournot competition," European Journal of Operational Research, Elsevier, vol. 243(1), pages 156-176.
    13. Zou, Xuxia & Pokharel, Shaligram & Piplani, Rajesh, 2008. "A two-period supply contract model for a decentralized assembly system," European Journal of Operational Research, Elsevier, vol. 187(1), pages 257-274, May.
    14. Caliskan Demirag, Ozgun & Xue, Weili & Wang, Jie, 2021. "Retailers’ Order Timing Strategies under Competition and Demand Uncertainty," Omega, Elsevier, vol. 101(C).
    15. Chen, Jing & Bell, Peter C., 2011. "Coordinating a decentralized supply chain with customer returns and price-dependent stochastic demand using a buyback policy," European Journal of Operational Research, Elsevier, vol. 212(2), pages 293-300, July.
    16. Frank Youhua Chen & Candace Arai Yano, 2010. "Improving Supply Chain Performance and Managing Risk Under Weather-Related Demand Uncertainty," Management Science, INFORMS, vol. 56(8), pages 1380-1397, August.
    17. Barry Alan Pasternack, 2008. "Commentary—Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 27(1), pages 131-132, 01-02.
    18. Granot, Daniel & Yin, Shuya, 2007. "On sequential commitment in the price-dependent newsvendor model," European Journal of Operational Research, Elsevier, vol. 177(2), pages 939-968, March.
    19. Yao, Z. & Leung, Stephen C.H. & Lai, K.K., 2008. "Manufacturer's revenue-sharing contract and retail competition," European Journal of Operational Research, Elsevier, vol. 186(2), pages 637-651, April.
    20. Fang, Xiang & Gavirneni, Srinagesh & Rao, Vithala R., 2013. "Supply chains in the presence of store brands," European Journal of Operational Research, Elsevier, vol. 224(2), pages 392-403.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:207:y:2010:i:2:p:897-905. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.