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A multiscale decision theory analysis for revenue sharing in three-stage supply chains

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  • Andrew Henry
  • Christian Wernz

Abstract

Revenue sharing is an effective mechanism for coordinating decisions in a supply chain. For a three-stage supply chain, we explore how revenue-based incentives can be used by the stage 1 supply chain agent (retailer) to motivate cooperative behavior from its two upstream partners with conflicting interests. To illustrate our analysis, we provide a food supply chain example, with retailer, processor and farmer. Compared to the frequently studied two-stage problem, a three-stage supply chain leads to a more complex decision and incentive problem. To model and solve this more complex problem, we apply multiscale decision theory (MSDT), a novel approach for multi-level system analysis. MSDT enables us to account for uncertainties at all stages of the supply chain, not just at the final stage, and to derive analytic solutions. Results show and quantify the extent to which contracting and information sharing facilitate chain-wide cooperation. Further, it determines optimal decisions and incentives for agents at each stage. This paper is the first to apply MSDT to supply chains and contributes to its theory by advancing MSDT modeling and analysis capabilities. The modeling and solution approach can be applied to decision and inventive problems in other multi-level enterprise systems. Copyright Springer Science+Business Media New York 2015

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  • Andrew Henry & Christian Wernz, 2015. "A multiscale decision theory analysis for revenue sharing in three-stage supply chains," Annals of Operations Research, Springer, vol. 226(1), pages 277-300, March.
    • Handle: RePEc:spr:annopr:v:226:y:2015:i:1:p:277-300:10.1007/s10479-014-1735-y
    DOI: 10.1007/s10479-014-1735-y
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    Cited by:

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    2. Xiaofang Liu & Jian Li & Jun Wu & Guoqing Zhang, 2017. "Coordination of supply chain with a dominant retailer under government price regulation by revenue sharing contracts," Annals of Operations Research, Springer, vol. 257(1), pages 587-612, October.
    3. Biancalani, Francesco & Gnecco, Giorgio & Riccaboni, Massimo, 2022. "Price-volume agreements: A one principal/two agents model," European Journal of Operational Research, Elsevier, vol. 300(1), pages 296-309.
    4. Jamalnia, Aboozar & Gong, Yu & Govindan, Kannan & Bourlakis, Michael & Mangla, Sachin Kumar, 2023. "A decision support system for selection and risk management of sustainability governance approaches in multi-tier supply chain," International Journal of Production Economics, Elsevier, vol. 264(C).
    5. Aditya U. Kulkarni & Christian Wernz, 2020. "Optimal incentives for teams: a multiscale decision theory approach," Annals of Operations Research, Springer, vol. 288(1), pages 307-329, May.
    6. Christian Wernz & Yongjia Song & Danny R. Hughes, 2021. "How hospitals can improve their public quality metrics: a decision-theoretic model," Health Care Management Science, Springer, vol. 24(4), pages 702-715, December.

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