Annals of Operations Research

, Volume 257, Issue 1–2, pp 641–659 | Cite as

Benefit and risk analysis of consignment contracts

Article
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Abstract

Consignment contracts are widely implemented in virtual market. We consider a supplier produces product and sells it to market through a retailer by consignment contract. In a unified model assumption, considering random demand and customers’ uncertain return behavior, we focus on two popular consignment contracts: vendor managed consignment inventory contract and consignment contract with revenue sharing. Comparing analytical results between the two contracts, we find that (1) the retailer and whole supply chain will benefit more from the consignment contract with revenue sharing, (2) the supplier will prefer to vendor managed consignment inventory contract, (3) both the retailer and supply chain will share a higher risk under the consignment contract with revenue sharing, the supplier’s shares of risk and profit highly depend on his share of the total expected cost, (4) all the profit and risk functions are decrease in uncertainty of customer return. We believe that these managerial insights can advance the understanding about use of the two consignment contracts in supply chain management with both benefit and risk considerations.

Keywords

Consignment contract Revenue sharing Vendor managed consignment inventory Risk analysis Supply chain management 

Notes

Acknowledgments

The authors sincerely thank the editor and the anonymous reviewers for their constructive and important comments on the paper. We acknowledge the support of (i) National Natural Science Foundation of China, grant no. 71202162, for Wei Hu; (ii) the Fundamental Research Funds for the Central Universities of China No. NKZXZD1103, and The Major Program of the National Social Science Fund of China (Grant No. 13&ZD147), for YongjianLi; and (iii) National Natural Science Foundation of China (NSFC) No. 71372100, for Wen Wang.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.School of Mathematical Sciences and LPMCNankai UniversityTianjinChina
  2. 2.Business School of Nankai UniversityTianjinChina

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