The Optimal Decision Of Slotting Fee And Percentage Of Revenue Under The Consignment Model

In the context of globalization, retailers, especially retailer giants become even more prominent. Retailers with dominant position play a leading role when negotiating with manufacturers in trading. Faced with uncertain demand, retailers require suppliers to adopt the sale of goods by consignment in order to avoid the risk and get percentages of sales revenue in accordance with the consignment contract agreement. How to design the consignment contract and make a reasonable distribution of profits to optimize supply chain has attracted wide attention of scholars. However, before the retailers and the manufacturers decide to cooperate, there is another important decision problem, namely mutual selection and matching between retailers and manufacturers. Retailers present appropriate policy (including slotting fee and percentage of revenue) to select the best manufacturer set, while manufacturers compare different consignment policy to choose the retailer that can maximize their profits by consignment. This process is an effective method in allocation of resources. Current research neglects this matching process. In this paper, we use game theory and mixed integer programming method to study how retailers make reasonable consignment policy to choose right manufacturers in order to achieve maximum profits when manufacturers take the selective strategy.This paper mainly studies the following three problems:Firstly, in the retail monopoly environment, it presents the retailer’s optimal consignment policy when there are multiple manufacturers in the market. Secondly, when there exist competition in market and two retailers with sales difference, this paper uses game theory to analyze two retailers’optimal consignment policy making problems. At last, it discusses two retailers’optimal consignment policy making problems with sale and cost differences in a competitive environment. For the first problem, it formulates a mixed integer programming model of the monopoly retailer’s decision process and manufacturers’matching process, and presents a method to calculate the retailer’s optimal consignment policy. Through a numerical example, it analyzes the general rules of how to design the slotting fee and percentage policy. For the latter two issues, it establishes optimal consignment policy model under retailing-competition environment. By analyzing two retailers-two manufacturers problem, it puts forward the specific algorithm for the game equilibrium and consignment policy. Through a numerical example, it discusses the interaction between strong retailers’decision and weak retailers’decision. The study shows that as manufacturers have different characteristics in product prices, costs, sales scale and other parameters in the monopoly-retailer environment, retailers’ optimal consignment policy with adjusted slotting fee and percentage of revenue can greatly improve their revenue. In the retailing-competition environment, strong retailers match with the strong manufacturers and weak retailers match with weak manufacturers. Both retailers will not choose the manufacturers that are lack of competitiveness. On one hand, retailers’ competition leads to a decline of retailers’profit. On the other hand it helps to optimize the market allocation of resources.