Title

Channel coordination in a consignment contract

Document Type

Journal article

Source Publication

European Journal of Operational Research

Publication Date

12-1-2010

Volume

207

Issue

2

First Page

897

Last Page

905

Keywords

Channel coordination, Pricing, Production, Retailing

Abstract

With the emergence of virtual market places, consignment selling has been thriving at an unprecedented pace. It has been shown in the literature that inefficiency exists in a decentralized consignment channel with a single revenue share agreement. In our study, we analyze contracts observed in practice that contain bonus or side payment terms, and examine whether they can promote better coordination between the supplier and the retailer. We found that no multi-tier Bonus system can fully coordinate the consignment channel. However, fine adjustments of bonus parameters can bring the channel close to full coordination. Additionally, we found revenue sharing with side payment contracts not only fully coordinate the channel, but they can also be customized to meet the needs of small, medium and large suppliers for extra retailer services such as warehousing and transportation. Managerial insights on how to design the contracts from the supplier, retailer and channel perspectives are discussed in the paper.

DOI

10.1016/j.ejor.2010.05.027

Print ISSN

03772217

E-ISSN

18726860

Publisher Statement

Copyright © 2010 Elsevier B.V.

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Full-text Version

Publisher’s Version

Recommended Citation

Zhang, D., De Matta, R., & Lowe, T. J. (2010). Channel coordination in a consignment contract. European Journal of Operational Research, 207(2), 897-905. doi: 10.1016/j.ejor.2010.05.027