Buy-Back ContractSwimsuitExampleProfitvs.OrderQuantity600,000500,000400,000iorRet.P300,000-Mfg.P200,000100,000003,0006,0009,00012,00015,00018,00021,000QuantityFIGURE4-2:Buy-backcontract4-11
4-11 Buy-Back Contract Swimsuit Example FIGURE 4-2: Buy-back contract
Revenue Sharing ContractBuyersharessomeof itsrevenuewiththesupplierin return fora discount on the wholesale priceBuyertransfersaportionoftherevenuefromeach unit sold backtothe supplier4-12
4-12 Revenue Sharing Contract ⚫ Buyer shares some of its revenue with the supplier ⚫ in return for a discount on the wholesale price. ⚫ Buyer transfers a portion of the revenue from each unit sold back to the supplier
Revenue Sharing ContractSwimsuitExampleManufacturer agrees to decrease the wholesalepricefrom$80to$60Inreturn,theretailerprovides15percent of theproduct revenue to the manufacturer.Retailer has an incentive to increase his orderquantityto14,000foraprofitof$504,325Thisorder increase leads to increasedmanufacturer'sprofitof$481,375Supply chaintotal profit=$985700（=$504325+$481,375)4-13
4-13 Revenue Sharing Contract Swimsuit Example ⚫ Manufacturer agrees to decrease the wholesale price from $80 to $60 ⚫ In return, the retailer provides 15 percent of the product revenue to the manufacturer. ⚫ Retailer has an incentive to increase his order quantity to 14,000 for a profit of $504,325 ⚫ This order increase leads to increased manufacturer’s profit of $481,375 ⚫ Supply chain total profit = $985,700 (= $504,325+$481,375)
Revenuee Sharing ContractSwimsuitExampleProfitvs.OrderQuantity700,000.00600,000.00500,000.00(S)Ret.Por400,000.00Mfg.P300,000.00200,000.00100,000.000.008,00011,00014,0005,00017,000QuantityFIGURE4-3:Revenue-sharing contract4-14
4-14 Revenue Sharing Contract Swimsuit Example FIGURE 4-3: Revenue-sharing contract
Other Types of ContractsQuantity-FlexibilityContractsSupplier provides full refundforreturned(unsold)itemsAslong asthenumberof returns isnolargerthan a certain quantitySalesRebateContractsProvides a direct incentive to the retailer toincrease sales by means of a rebate paidbythe supplier for any item sold above a certainquantity.4-15
4-15 Other Types of Contracts ⚫ Quantity-Flexibility Contracts ⚫ Supplier provides full refund for returned (unsold) items ⚫ As long as the number of returns is no larger than a certain quantity. ⚫ Sales Rebate Contracts ⚫ Provides a direct incentive to the retailer to increase sales by means of a rebate paid by the supplier for any item sold above a certain quantity