Supply chain coordination with revenue sharing contract and lateral transshipment

Abstract

We construct a two-echelon supply chain with one supplier and two retailers. Revenue sharing contract and lateral transshipment are considered in the discussed supply chain. We present a game model, and study how lateral transshipment under revenue sharing contract affects retailers' inventory choices and supply chain profit. Retailers choose their inventory levels by considering the possibility of transshipments to maximize their own profits under revenue sharing contract. We find that transshipment combined with revenue sharing contract can coordinate the discussed supply chain, and improve the performance of all the supply chain actors.