Abstract: It this paper the revenue-sharing contract for coordinating the multilocation lateral transshipment is studied. It includes two contract parameters, which are designed and implemented by an independent transshipment corporation. A non-cooperative game model is established to describe the transshipment system behavior and the necessary and sufficient condition for the contract to coordinate transshipping behavior is constructed. Taking a two-location system as an example, the analytical results of transshipment price are derived and the necessary conditions of revenue-sharing ratio under which the system is coordinated by the contract are proposed. Moreover, a heuristic algorithm is developed to calculate the retailer’s optimal order volume, transshipment price and expected profits. Furthermore, numerical results verify the theoretical conclusions and examine sensitivity of some parameters. It is found that: (1) Under symmetric case, revenue-sharing strategy is a dominant choice for retailers which involved in transshipping; (2) Under asymmetric case, higher transshipment costs can make retailer’s expected profits decreasingly; (3)Matching lower transshipment price, higher salvage value can make retailer’s expected profits increasingly; (4)With higher transshipment price, higher marginal value can make retailer’s expected profits increasingly. Sensitivity analysis results show the significant influence of contract parameters (transshipment price and revenue-sharing ratio) on retailer’s profits under asymmetric case.

Key words: supply chain, lateral transshipment, revenue-sharing contract, coordination mechanism