Coordinating inventory decisions in a two-echelon supply chain through the target sales rebate contract

Abstract

In this paper, a model in the context of a decentralised two-echelon supply chain (SC) with a single supplier and a single retailer confronting an uncertain market demand is developed. The proposed model seeks to coordinate the decisions related to the retailer's order quantity that increases the profit of the decentralised SC as much as the centralised one. With regard to the considered SC features, sales rebate contract is applied and a new approach for determining the contract's parameters including sales target level and rebate amount is developed which is based on the retailer and supplier viewpoints. Furthermore, applicability of the proposed model is evaluated via some numerical examples and the results are analysed in depth. Finally, some sensitivity analyses are conducted on demand variations. The obtained results reveal that the proposed model has the capability of coordinating the order quantity in the investigated SC and also is able to handle the demand fluctuations effectively.