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Submitted to manuscript EJOR-D-10-02163R1
 

Summary: Submitted to
manuscript EJOR-D-10-02163R1
Consignment contracts with retail competition
Elodie Adida*
Mechanical and Industrial Engineering, University of Illinois at Chicago, elodie@uic.edu
Nantaporn Ratisoontorn
Mechanical and Industrial Engineering, University of Illinois at Chicago, nratis2@uic.edu
Consignment contracts have been widely employed in many industries. Under such contracts, items are sold
at a retailer's but the supplier retains the full ownership of the inventory until purchased by consumers; the
supplier collects payment from the retailer based on actual units sold. We investigate how competition among
retailers influences the supply chain decisions and profits under different consignment arrangements, namely
a consignment price contract and a consignment contract with revenue share. First, we investigate how these
two consignment contracts and a price only contract compare from the perspective of each supply chain
partner. We find that the retailers benefit more from a consignment price contract than from a consignment
contract with revenue share or a price only contract, regardless of the level of retailer differentiation. The
supplier's most beneficial contact, however, critically depends upon the level of retailer differentiation: a
consignment contract with revenue share is preferable for the supplier if retailer differentiation is strong;
otherwise a consignment price contract is preferable. Second, we study how retailer differentiation affects the
profits of all supply chain partners. We find that less retailer differentiation improves the supplier's profit for
both types of consignment contract. Moreover, less retailer differentiation improves profits of the retailers in

  

Source: Adida, Elodie - Department of Mechanical and Industrial Engineering, University of Illinois at Chicago

 

Collections: Engineering