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Chinese Journal of Management Science ›› 2015, Vol. 23 ›› Issue (2): 92-98.doi: 10.16381/j.cnki.issn1003-207x.2015.02.011

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On Contracts with Risk Share for VMI Program Under Replenishment Strategy

FAN Chen, WANG Xiao-li, DING Chao, SU Qiang   

  1. School of Economics and Management, Tongji University, Shanghai 200092, China
  • Received:2012-09-19 Revised:2014-09-24 Online:2015-02-20 Published:2015-02-28

Abstract: This paper deals with the problem of contracts designing for supply chain under VMI(Vendor Managed Inventory) program. Inventory replenishing policies are also taken into consideration. A single supplier and single retailer module are considered under "vendor with owner ship" and discrete demand. Based on risk sharing, 2 contract forms are proposed: Design1: Supplier pays fix amount fee to retailer as the lost sales compensation, while retailer shares the occurred holding cost of supplier. Desing2: Retailer pays fix amount fee to supplier and supplier bears the occurred lost sale penalty while retailer shares the occurred holding cost of supplier. Based on Zheng and Federgruen's (r,Q) and (s,S) model, the 2 contracts' performances are studied under the 2 inventory replenishing policies. The result indicates that the efficiency of supply chain under the 2 contracts is satisfactory. And with proper contract parameters' designing, supply chain coordination is also possible. Meanwhile, the result is compared with revenue share contract,which shows that contracts with risk share can achieve higher supply chain efficiency. The later simulation proofs our result. The study shows that one contract performs differently under different supply chain environment; the inventory replenishing policy has impact on contracts performance. It is found that under certain circumstance, supply chain can benefit from sharing risk rather than sharing revenue.

Key words: VMI, supplier with ownership, inventory replenishing policy, risk share, contract design

CLC Number: