| Author | Shafiq, Muhammad |
| Note | A dissertation submitted in partial fulfillment of the requirements for the
degree of Doctor of Engineering in
Industrial and Manufacturing Engineering |
| Publisher | Asian Institute of Technology |
| Abstract | A typical revenue sharing contract defines priori only wholesale price and revenue sharing percentages. The supply chains dealing with rapidly changing short life span products face high demand uncertainty. The performance can be increased if downstream members share capacity reservation or quantity allocation risk of the upstream member. Typical revenue sharing contract fails to motivate the members and requires the inclusion of prior-commitment from the downstream members and penalties for compliance purposes. The analysis about the design, implementation and implications of such revenue sharing contracts with prior commitments has not received considerable attention of researchers in existing studies.
In this research, we proposed a revenue-sharing contract with prior-commitments and two-way penalties in order to facilitate the manufacturer to optimize production capacity allocation decisions in a supply chain facing stochastic and price-independent demand. Short life span and long manufacturing lead-time of the product requires the manufacturer to allocate and produce prior to the selling season. In order to motivate the manufacturer to allocate enough capacity, the proposed contract induces the retailers to share capacity investment risk of the manufacturer by making prior commitments about expected order quantities in upcoming selling season. The inclusion of under-purchase and over-purchase penalties ensures that the commitment level of each retailer is not too low or too high. The manufacturer has to allocate and produce quantity for each retailer in response to the commitment level with flexibility of re-allocation before delivery. Under-supply penalty is introduced to ensure product availability during selling season and also to compensate the shortage loss of the retailers if the manufacturer fails to supply committed quantity. The uncertainty of the demand and invisibility of allocated quantity makes it difficult for the retailer to find optimum level of commitment; however, manufacturer’s allocation decision can reach optimality in all scenarios. The proposed contract is flexible and allows any agreed-upon profit sharing percentages among the members. The study examines quantity allocation trend of the manufacturer at various levels of commitments from the retailers using numerical analyses. This study also investigates the effect of demand variability, commitment level and profit sharing percentages on performance of the supply chain.
The proposed contract is then extended to examine the effect of demand correlation between the retailers via numerical experiments. The quantity allocation trend of the manufacturer at various levels of commitments from the retailers and coordination performance of the proposed contract is examined at various levels of commitments, revenue sharing percentages and demand correlation. The analyses show that the proposed contract with inclusion of prior-commitments, two-way penalties and reallocation of pre-allocated quantities, achieves high coordination efficiency and outperforms the typical revenue sharing contract at all levels of demand variability and demand correlation between the retailers.
The proposed revenue sharing contract with prior commitments and two-way penalties can be extended for a general supply chain comprising multiple retailers facing uncertain demands and a manufacturer having limited capacity. Furthermore, stochastic and price-sensitive demand at retailers and the consideration of competitor's product are other interesting extensions. |
| Year | 2015 |
| Type | Dissertation |
| School | School of Engineering and Technology (SET) |
| Department | Department of Industrial Systems Engineering (DISE) |
| Academic Program/FoS | Industrial Systems Engineering (ISE) |
| Chairperson(s) | Huynh Trung Luong; |
| Examination Committee(s) | Phan Minh Dung ;Bohez, Erik L. J. ;Lam, Sarah S. ; |
| Scholarship Donor(s) | Higher Education Commission (HEC),
Pakistan ;AIT Fellowship; |