Supply Chain Coordination Using Revenue- Sharing Contract with Distributor’s Effort Dependent Demand

Revenue-sharing contracts are a kind of mechanism aimed at improving performance and achieving precise coordination of the supply chain. In this paper, we analyse and develop the revenue-sharing contract model of the three-level supply chain with distributor’s sales effort dependent demand. The paper discusses the impacts of sales efforts on coordination of the supply chain and explains the reasons why traditional revenue-sharing contracts cannot coordinate the supply chain in this condition. In order to coordinate the supply chain, supposing the distributor bears the sales effort costs, the paper proposes an improved revenue-sharing contract based on a quantity discount policy. Three conditions are taken into consideration: the improved contract is only implemented between the retailer and the distributor, only implemented between the distributor and the manufacturer, and implemented both between the retailer and the distributor and between the distributor and the manufacturer. The paper shows that the improved revenue-sharing contract can coordinate the supply chain by carrying it out in one transaction or two transactions of the three-level supply chain. By supposing the effort and the market demand satisfy the multiplication form, we characterize the optimal decision variables (sales effort and inventory quantity). At the end, a numerical example is given to demonstrate the correctness of this paper. (Received, processed and accepted by the Chinese Representative Office.)