IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v121y2009i2p383-394.html
   My bibliography  Save this article

The implications of joint adoption of revenue sharing and advance booking discount programs

Author

Listed:
  • Bellantuono, Nicola
  • Giannoccaro, Ilaria
  • Pontrandolfo, Pierpaolo
  • Tang, Christopher S.

Abstract

Consider a supply chain that consists of a supplier and a retailer, who sells a single product to the customers over a short selling season. In this paper, we present a model in which the supply chain partners participate in two different programs: (1) the supplier and the retailer enter a revenue sharing (RS) contract and (2) the retailer offers an advance booking discount (ABD) program to the customers. Under the RS scheme, the retailer shares a portion of the selling price to the supplier in return for a lower wholesale price. The ABD program is intended to use price discount to entice customers to pre-commit their orders. Besides demand increases, the ABD program allows the retailer to use the pre-committed orders to develop more accurate forecasts. By examining our model, we determine the optimal decisions associated with these two programs including the optimal price discount, optimal order quantity. We analyse the optimal expected channel profit associated with the four possible scenarios wherein each program is offered or not. We also provide a detailed numerical example to illustrate the conditions under which the benefit of the joint adoption of RS and ABD programs is higher than the sum of the benefits associated with separate adoptions of these two programs.

Suggested Citation

  • Bellantuono, Nicola & Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo & Tang, Christopher S., 2009. "The implications of joint adoption of revenue sharing and advance booking discount programs," International Journal of Production Economics, Elsevier, vol. 121(2), pages 383-394, October.
    • Handle: RePEc:eee:proeco:v:121:y:2009:i:2:p:383-394
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925-5273(07)00066-7
    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. Evan L. Porteus, 2000. "Responsibility Tokens in Supply Chain Management," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 203-219, October.
    2. Ton de Kok & Fred Janssen & Jan van Doremalen & Erik van Wachem & Mathieu Clerkx & Winfried Peeters, 2005. "Philips Electronics Synchronizes Its Supply Chain to End the Bullwhip Effect," Interfaces, INFORMS, vol. 35(1), pages 37-48, February.
    3. Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2004. "Supply chain coordination by revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 89(2), pages 131-139, May.
    4. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    5. Chakravarthi Narasimhan, 1984. "A Price Discrimination Theory of Coupons," Marketing Science, INFORMS, vol. 3(2), pages 128-147.
    6. Kevin McCardle & Kumar Rajaram & Christopher S. Tang, 2004. "Advance Booking Discount Programs Under Retail Competition," Management Science, INFORMS, vol. 50(5), pages 701-708, May.
    7. Wang, Qunzhi & Tsao, De-bi, 2006. "Supply contract with bidirectional options: The buyer's perspective," International Journal of Production Economics, Elsevier, vol. 101(1), pages 30-52, May.
    8. Hau L. Lee & Meir J. Rosenblatt, 1986. "A Generalized Quantity Discount Pricing Model to Increase Supplier's Profits," Management Science, INFORMS, vol. 32(9), pages 1177-1185, September.
    9. Hau L. Lee & V. Padmanabhan & Seungjin Whang, 1997. "Information Distortion in a Supply Chain: The Bullwhip Effect," Management Science, INFORMS, vol. 43(4), pages 546-558, April.
    10. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    11. Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2002. "Inventory management in supply chains: a reinforcement learning approach," International Journal of Production Economics, Elsevier, vol. 78(2), pages 153-161, July.
    12. Andy A. Tsay, 1999. "The Quantity Flexibility Contract and Supplier-Customer Incentives," Management Science, INFORMS, vol. 45(10), pages 1339-1358, October.
    13. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-356, April.
    14. 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.
    15. Hau Lee & Seungjin Whang, 1999. "Decentralized Multi-Echelon Supply Chains: Incentives and Information," Management Science, INFORMS, vol. 45(5), pages 633-640, May.
    16. Christopher S. Tang & Kumar Rajaram & Ayd{i}n Alptekinou{g}lu & Jihong Ou, 2004. "The Benefits of Advance Booking Discount Programs: Model and Analysis," Management Science, INFORMS, vol. 50(4), pages 465-478, April.
    17. A. A. Tsay & W. S. Lovejoy, 1999. "Quantity Flexibility Contracts and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 89-111.
    18. Schneeweiss, Christoph & Zimmer, Kirstin, 2004. "Hierarchical coordination mechanisms within the supply chain," European Journal of Operational Research, Elsevier, vol. 153(3), pages 687-703, March.
    19. Qin, Yiyan & Tang, Huanwen & Guo, Chonghui, 2007. "Channel coordination and volume discounts with price-sensitive demand," International Journal of Production Economics, Elsevier, vol. 105(1), pages 43-53, January.
    20. Gérard P. Cachon & Martin A. Lariviere, 1999. "Capacity Choice and Allocation: Strategic Behavior and Supply Chain Performance," Management Science, INFORMS, vol. 45(8), pages 1091-1108, August.
    21. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    22. Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
    23. Gérard P. Cachon & Paul H. Zipkin, 1999. "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain," Management Science, INFORMS, vol. 45(7), pages 936-953, July.
    24. Chauhan, Satyaveer S. & Proth, Jean-Marie, 2005. "Analysis of a supply chain partnership with revenue sharing," International Journal of Production Economics, Elsevier, vol. 97(1), pages 44-51, July.
    25. Stephen A. Smith & Dale D. Achabal, 1998. "Clearance Pricing and Inventory Policies for Retail Chains," Management Science, INFORMS, vol. 44(3), pages 285-300, March.
    26. 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.
    27. J A A van der Veen & V Venugopal, 2005. "Using revenue sharing to create win–win in the video rental supply chain," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(7), pages 757-762, July.
    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. Hu, Benyong & Feng, Yi, 2017. "Optimization and coordination of supply chain with revenue sharing contracts and service requirement under supply and demand uncertainty," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 185-193.
    2. Roberta Pellegrino & Nicola Costantino & Danilo Tauro, 2020. "Advance Purchase Discounts for Supply Chain Finance System Coordination," Sustainability, MDPI, vol. 12(23), pages 1-20, December.
    3. Wen Zhang & Yi He, 2020. "Optimal advance selling discount strategy with future‐oriented consumers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 308-320, April.
    4. J-M Chen & H-L Cheng & I-C Lin, 2011. "On channel coordination under price-dependent revenue-sharing: can eBay's fee structure coordinate the channel?," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(11), pages 1992-2001, November.
    5. Ke Wang & Jinwen Sun & Liang Liang & Xiaoyan Li, 2016. "Optimal contracts and the manufacturer’s pricing strategies in a supply chain with an inequity-averse retailer," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(1), pages 107-125, March.
    6. Pietro Giovanni, 2017. "Closed-loop supply chain coordination through incentives with asymmetric information," Annals of Operations Research, Springer, vol. 253(1), pages 133-167, June.
    7. Pietro De Giovanni, 2016. "Coordination in a distribution channel with decisions on the nature of incentives and share-dependency on pricing," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(8), pages 1034-1049, August.
    8. Hu, Benyong & Meng, Chao & Xu, Dong & Son, Young-Jun, 2016. "Three-echelon supply chain coordination with a loss-averse retailer and revenue sharing contracts," International Journal of Production Economics, Elsevier, vol. 179(C), pages 192-202.
    9. Mei, Wanxia & Du, Li & Niu, Baozhuang & Wang, Jincheng & Feng, Jiejian, 2016. "The effects of an undisclosed regular price and a positive leadtime in a presale mechanism," European Journal of Operational Research, Elsevier, vol. 250(3), pages 1013-1025.
    10. Jen-Ming Chen & Hung-Liang Cheng, 2012. "Effect of the price-dependent revenue-sharing mechanism in a decentralized supply chain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 20(2), pages 299-317, June.
    11. Altug, Mehmet Sekip, 2016. "Supply chain contracting for vertically differentiated products," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 34-45.
    12. Chen, Jing, 2011. "Returns with wholesale-price-discount contract in a newsvendor problem," International Journal of Production Economics, Elsevier, vol. 130(1), pages 104-111, March.
    13. Wang, Qinan & Chay, Yiowmin & Wu, Zhang, 2011. "Streamlining inventory flows with time discounts to improve the profits of a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 132(2), pages 230-239, August.

    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. Roberta Pellegrino & Nicola Costantino & Danilo Tauro, 2020. "Advance Purchase Discounts for Supply Chain Finance System Coordination," Sustainability, MDPI, vol. 12(23), pages 1-20, December.
    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. Zhou, Yong-Wu, 2009. "Two-echelon supply chain coordination through the unified number of annual orders," International Journal of Production Economics, Elsevier, vol. 117(1), pages 162-173, January.
    4. 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.
    5. Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2009. "Negotiation of the revenue sharing contract: An agent-based systems approach," International Journal of Production Economics, Elsevier, vol. 122(2), pages 558-566, December.
    6. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    7. Harish Krishnan & Roman Kapuscinski & David A. Butz, 2004. "Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort," Management Science, INFORMS, vol. 50(1), pages 48-63, January.
    8. Cai, Wenbo & Abdel-Malek, Layek & Hoseini, Babak & Rajaei Dehkordi, Sharareh, 2015. "Impact of flexible contracts on the performance of both retailer and supplier," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 429-444.
    9. 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.
    10. Fangruo Chen, 1999. "Decentralized Supply Chains Subject to Information Delays," Management Science, INFORMS, vol. 45(8), pages 1076-1090, August.
    11. Huang, Kwei-Long & Kuo, Chia-Wei & Lu, Ming-Lun, 2014. "Wholesale price rebate vs. capacity expansion: The optimal strategy for seasonal products in a supply chain," European Journal of Operational Research, Elsevier, vol. 234(1), pages 77-85.
    12. Jeong, In-Jae & Jorge Leon, V., 2012. "A serial supply chain of newsvendor problem with safety stocks under complete and partial information sharing," International Journal of Production Economics, Elsevier, vol. 135(1), pages 412-419.
    13. Halati, Abolhassan & He, Yuanjie, 2010. "Analysis of supply chains with quantity based fixed incentives," European Journal of Operational Research, Elsevier, vol. 202(1), pages 214-222, April.
    14. Albert Y. Ha, 2001. "Supplier‐buyer contracting: Asymmetric cost information and cutoff level policy for buyer participation," Naval Research Logistics (NRL), John Wiley & Sons, vol. 48(1), pages 41-64, February.
    15. Jeong, In-Jae, 2012. "A centralized/decentralized design of a full return contract for a risk-free manufacturer and a risk-neutral retailer under partial information sharing," International Journal of Production Economics, Elsevier, vol. 136(1), pages 110-115.
    16. Choi, Tsan-Ming & Li, Duan & Yan, Houmin & Chiu, Chun-Hung, 2008. "Channel coordination in supply chains with agents having mean-variance objectives," Omega, Elsevier, vol. 36(4), pages 565-576, August.
    17. van der Rhee, Bo & Schmidt, Glen & A. van der Veen, Jack A. & Venugopal, V., 2014. "Revenue-sharing contracts across an extended supply chain," Business Horizons, Elsevier, vol. 57(4), pages 473-482.
    18. Qiang Gong, 2008. "Optimal Buy-Back Contracts with Asymmetric Information," International Journal of Management and Marketing Research, The Institute for Business and Finance Research, vol. 1(1), pages 23-47.
    19. 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.
    20. Ding, Ding & Chen, Jian, 2008. "Coordinating a three level supply chain with flexible return policies," Omega, Elsevier, vol. 36(5), pages 865-876, October.

    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:proeco:v:121:y:2009:i:2:p:383-394. 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/ijpe .

    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.