Fresh product supply chain coordination using vendor managed inventory and consignment with revenue sharing over a finite planning horizon

Abstract

Selling fresh food products can be challenging due to their perishability, which often results in significant losses. To address this issue and maximize profits, we have developed a contract that takes into account the costs of investing in preservation technology over a finite planning horizon. The arrangements incentivize the supplier and the retailer to establish coordination and determine not only the optimal price and schedule for replenishment but also the optimal investment required in preservation technology. We investigate the effectiveness of vendor managed inventory (VMI) and consignment with revenue-sharing models through an analysis of pricing and inventory decisions, followed by evaluating the channel performance and the distribution of profits. Contract parameters are defined under the equilibrium state to achieve advantageous relationships among supply chain partners by improving profits for both channel members. The finding shows that a VMI and consignment mechanism with a side payment arrangement could help coordinate channels in a non-cooperative setting. Still, performing the contract is easier in a cooperative setting. Both members could achieve optimal decisions for the wide-channel system without any additional payments, leading to increased profitability for all supply chain members. In an alternative approach, the retailer has the option to offer a subsidy alongside the revenue-sharing-only trading terms within a VMI and consignment by incorporating a generalized revenue-sharing scheme to facilitate coordination with the supplier.