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Benefit and risk analysis of consignment contracts

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  • Wei Hu

    (Nankai University)

  • Yongjian Li

    (Business School of Nankai University)

  • Wen Wang

    (Business School of Nankai University)

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.

Suggested Citation

  • Wei Hu & Yongjian Li & Wen Wang, 2017. "Benefit and risk analysis of consignment contracts," Annals of Operations Research, Springer, vol. 257(1), pages 641-659, October.
    • Handle: RePEc:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1919-0
    DOI: 10.1007/s10479-015-1919-0
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    References listed on IDEAS

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    Cited by:

    1. Bieniek Milena, 2018. "Channel Performance Under Vendor Managed Consignment Inventory Contract With Additive Stochastic Demand," Statistics in Transition New Series, Polish Statistical Association, vol. 19(3), pages 551-561, September.
    2. Feng Tao & Yanhong Xie & Yao-Yu Wang & Fujun Lai & Kin Keung Lai, 2022. "Contract strategies in competitive supply chains subject to inventory inaccuracy," Annals of Operations Research, Springer, vol. 309(2), pages 641-661, February.
    3. Jing Liu & Fuyou Huang & Chao Ma, 2021. "Coordination of VMI supply chain with replenishment tactic under risk aversion and sales effort," 4OR, Springer, vol. 19(3), pages 389-414, September.
    4. Milena Bieniek, 2018. "Channel Performance Under Vendor Managed Consignment Inventory Contract With Additive Stochastic Demand," Statistics in Transition New Series, Polish Statistical Association, vol. 19(3), pages 551-561, September.

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