Three-Level Supply Chain Coordination with Revenue-Sharing Contract and Rebate-Penalty Contract

A supply chain is made up of independent entities having independent decision-making abilities, each intent on maximizing his benefits. The coordination of a three-level supply chain made up of one manufacturer, one distributor and one retailer is studied under the random demand. Firstly, the optimal order quantity is determined with the channel coordination of the supply chain; Secondly, the paper designs a combined contract (revenue-sharing contract & rebate-penalty contract, RS-RP contract) to coordinate the supply chain, namely, manufacturer offers distributor a revenue-sharing contract and distributor offers retailer a rebate-penalty contract. The paper validates that RS-RP contract can coordinate the three-level supply chain by choosing reasonable parameters. The reasonable choice of parameters can attain the win-win good among all business members, which will help to improve the decision-making capacity and competive ability of businesses involved in the supply chain, and the sizes of parameters in a reasonable range relate to the bargaining position of a business. Finally, the validity of the RS-RP contract is illustrated by a numerical example.