Abstract: A vendor managed inventory(VMI)model is analyzed,and the products are sold over a single selling season.The interaction between the supplier and the retailer is modeled as a Stackelberg game with complete information,where the retailer acts as a leader by setting the revenue share.We also analyze the contract when the retailer pays the supplier a surplus subsidy for the products that are not sold out,and we show that,by using this two-parameter contract,the performance of the supply chain can be improved,and the channel can be coordinated.We also find the range in which the expected profits of all parties are increased.All our findings are illustrated by a numerical example.

Key words: supply chain, revenue-sharing, contract, VMI