Analysis of supply chain coordination with profit sharing under clearance and disposal sale markets

For many years, optimal decision of supply chain between a manufacturer and a retailer with clearance sale has been discussed. However, the combination of above topic and profit sharing has been substantially discussed. In this paper, we present an optimal inventory policy for a supply chain with return handling and profit sharing. We assume that the product is sold in three consecutive periods: the normal sale period, the clearance sale period and the subsequent leftovers disposal sale period. Two systems are analyzed: (i) the decentralized system, (ii) the centralized system. In the decentralized system, decision is made to maximize the retailer's expected profit. In the centralized system, decisions are fully integrated for the joint profits obtained from the sum of the individual party's expected profit. Under the situations, we also discuss a coordination effect of the manufacturer-retailer partnership based on profit sharing. The profit sharing is permitted only in the centralized system as the coordination effect between the manufacturer and the retailer. In numerical examples, the results of the coordination effect are shown, by comparing the expected profits of each player and the whole system in the decentralized system with those in the centralized system with profit sharing.