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Supply chain coordination using revenue-dependent revenue sharing contracts

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  • Palsule-Desai, Omkar D.

Abstract

A typical single period revenue sharing contract specifies a priori a fixed fraction for the supply chain revenue to be shared among the supply chain players. Over the years, supply chains, especially in the movie industry, have adopted multi-period revenue sharing contracts that specify one fraction for each contract period. These revenue sharing contracts are of revenue-independent type such that the revenue sharing fractions are independent of the quantum of revenue generated. Motivated by the recent events in Bollywood – one of the popular arms of the Indian movie industry – in this paper we develop and analyze a game theoretic model for revenue-dependent revenue sharing contracts wherein the actual proportion in which the supply chain revenue is shared among the players depends on the quantum of revenue generated. Our aim is to understand why revenue-dependent revenue sharing contracts are (or not) preferred over revenue-independent contracts. We also examine if supply chains can be coordinated over multiple periods using both types of revenue sharing contracts. We build a two-period model characterizing supply chains in the movie industry and highlight the implications of the multi-period contractual setting for the supply chain coordinating revenue sharing contracts. We show that supply chains can be perfectly coordinated using both types of revenue sharing contracts; however, there exist situations in which revenue-dependent contracts outperform revenue-independent contracts. Using revenue-dependent revenue sharing contracts supply chains can be coordinated while providing positive surplus to the supply chain players that is otherwise not possible under certain situations in revenue-independent contracts. We also demonstrate how revenue-dependent contracts enhance supply chain coordination and highlight their significance when the drop in the revenue potential from one period to another is moderate.

Suggested Citation

  • Palsule-Desai, Omkar D., 2013. "Supply chain coordination using revenue-dependent revenue sharing contracts," Omega, Elsevier, vol. 41(4), pages 780-796.
  • Handle: RePEc:eee:jomega:v:41:y:2013:i:4:p:780-796 DOI: 10.1016/j.omega.2012.10.001
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    References listed on IDEAS

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    Cited by:

    1. Cai, Jianhu & Hu, Xiaoqing & Tadikamalla, Pandu R. & Shang, Jennifer, 2017. "Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy," European Journal of Operational Research, Elsevier, vol. 261(1), pages 143-153.
    2. Pfeiffer, Thomas, 2016. "A comparison of simple two-part supply chain contracts," International Journal of Production Economics, Elsevier, vol. 180(C), pages 114-124.
    3. Bouka, Eleni & Merkouri, Maria-Marina & Metaxas, Theodore, 2015. "Indentifying Bollywood as a crucial factor of India’s economic development: A review analysis," MPRA Paper 64658, University Library of Munich, Germany, revised 2015.
    4. Xujin Pu & Lei Gong & Guanghua Han, 0. "A feasible incentive contract between a manufacturer and his fairness-sensitive retailer engaged in strategic marketing efforts," Journal of Intelligent Manufacturing, Springer, vol. 0, pages 1-14.
    5. Gerlach, Max & Kliewer, Natalia & Cleophas, Catherine, 2016. "A note on effective code-share management in practice," Journal of Air Transport Management, Elsevier, vol. 57(C), pages 202-205.
    6. Lee, Shine-Der & Fu, Yen-Chen, 2014. "Joint production and delivery lot sizing for a make-to-order producer–buyer supply chain with transportation cost," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 66(C), pages 23-35.
    7. 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.
    8. Heydari, Jafar, 2014. "Lead time variation control using reliable shipment equipment: An incentive scheme for supply chain coordination," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 44-58.
    9. Gao, Deng & Zhao, Xiaobo & Geng, Wei, 2014. "A delay-in-payment contract for Pareto improvement of a supply chain with stochastic demand," Omega, Elsevier, vol. 49(C), pages 60-68.
    10. Hariga, Moncer & Gumus, Mehmet & Daghfous, Abdelkader, 2014. "Storage constrained vendor managed inventory models with unequal shipment frequencies," Omega, Elsevier, vol. 48(C), pages 94-106.
    11. Li, Tian & Zhang, Hongtao, 2015. "Information sharing in a supply chain with a make-to-stock manufacturer," Omega, Elsevier, vol. 50(C), pages 115-125.
    12. Zhen, Lu, 2014. "A three-stage optimization model for production and outsourcing under China’s export-oriented tax policies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 1-20.
    13. Yang, Daojian & Qi, Ershi & Li, Yajiao, 2015. "Quick response and supply chain structure with strategic consumers," Omega, Elsevier, vol. 52(C), pages 1-14.
    14. Vafa Arani, Hamed & Rabbani, Masoud & Rafiei, Hamed, 2016. "A revenue-sharing option contract toward coordination of supply chains," International Journal of Production Economics, Elsevier, vol. 178(C), pages 42-56.
    15. Nematollahi, Mohammadreza & Hosseini-Motlagh, Seyyed-Mahdi & Heydari, Jafar, 2017. "Coordination of social responsibility and order quantity in a two-echelon supply chain: A collaborative decision-making perspective," International Journal of Production Economics, Elsevier, vol. 184(C), pages 107-121.

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