Coordination of a Two-echelon Supply Chain under Demand Uncertainty Using Revised Sales Rebate with Simultaneous Punishment and Rebate Approaches

Abstract

This paper investigates coordination of a decentralized two-echelon supply chain with a single supplier and retailer with uncertain market demand. The presented model pursuits to coordinate the decisions related to the retailer's order quantity that in addition to increasing the profit of the decentralized supply chain, grow the profit of both two members of the chain to the amount greater than the decentralized mode. The main purpose of the model is to achieve maximum profit of the whole supply chain, beside the provision of incentives to satisfy the chain members to withdraw the decentralized decisions and join the contract. Considering the studied supply chain features, a revised sales rebate contract is applied in which both punishment and rebate approaches have been adopted simultaneously. Furthermore, a new approach of determining the contract's parameters based on the retailer and supplier viewpoints is developed. Finally, some numerical studies are conducted and a sensitivity analysis is done on the parameter of demand variations. Results show that the presented model has the ability of coordinating the ordering quantity in the supply chain.