Revenue and risk sharing in view of uncertain demand during the pandemics

Abstract

Due to stochastic demand during the pandemics and uncertain environment, the vendor and the retailer share their risks and benefits by applying revenue sharing and markdown policy in order to reduce the risks and achieve a win-win contract. Three supply chain coordination policies, decentralized policy, centralized vendor-retailer policy and centralized vendor-retailer revenue sharing policy are developed. An example with uniform probability demand is used to illustrate the model. The result shows that the revenue sharing contract is more attractive for the retailer, and the centralized policy is more attractive for the vendor. Therefore, price markdowns are used to share benefits. The sensitivity analysis shows that the number of markdowns is not sensitive to the variances in the uniform demand distribution. A win-win contract based on a revenue sharing and price markdown is developed. A case example shows that the mechanism of price markdowns and revenue sharing contract affect the optimal supply chain profit in view of the pandemics and uncertain environment.