Analysis of a supply chain partnership with revenue sharing

The profit margins of retailers and providers are becoming smaller as a greater numbers of players are joining the market. The customer generally switches brands/retailers as the price increases. Since provider's revenue, retailer's revenue and the customer demand are interrelated; it is necessary to have a business partnership to win the market. This business partnership requires a mutual cooperation and coordination among partners to decide the retail and the wholesale price, profit margins and inventory level in stock in order to get a greater market share and hence higher revenues. In this paper, we present a provider-retailer partnership model based on profit sharing. We assume that customer demand depends upon the retail price and tends to zero as the price of commodity tends to infinity. We propose an approach to maximize the combined profit and sharing the profit among partners proportional to their risk. (c) 2004 Published by Elsevier B.V.