Supply Chain Contract Selection With Sales Effort Efficiency

Sales effort affects customer demand, retailer order quantity, supply plan and inventory strategy directly, and brings significant effect on supply chain profit and cost. Buyback contract and Target Rebate contract are the most popular mechanisms in coordinating the supply chain with sales effort. In this paper, we apply both of them to coordinate the supply chain with supplier and retailer sales effort. Furthermore, we discuss the contract selection of supply chain, retailer and supplier when sales effort efficiency is symmetric and asymmetric. The main contents are as follows:1. Literature review. Most of the researches focus on retailer sales effort, and the main incentive mechanisms are effort cost sharing, Buyback contract and Target Rebate contract.2. Contract modeling with supplier and retailer sales effort. We first analyze the optimal order quantity of centralized supply chain. And then build Buyback contract and Target Rebate contract model. We find both of them can coordinate the supply chain, while the coordination terms are stricter than that without sales effort.3. Contract selection when sales effort efficiency is symmetric. When the retailer and supplier’s sales effort efficiency exceeds the critical ratio, supply chain can choose either Buyback or Target Rebate contract. The retailer prefers Buyback contract when he is low efficient, otherwise prefers Target Rebate contract. To the contrary, the supplier prefers Target Rebate contract when he is low efficient, otherwise prefers Buyback contract.4. Contract selection when sales effort efficiency is asymmetric. We first improve both Buyback and Target Rebate contract to reveal the private information of retailer. When the retailer is high efficient, the contract selection of supply chain, retailer and supplier is aligned with symmetric information. While when the retailer is low efficient, both Buyback and Target Rebate contract can only achieve a sub-optimal profit, and the critical ratio of sales effort efficiency is lower than that with symmetric information.We conclude that the sales effort efficiency affects both supply chain and participants’ profit, as well as their contract bias and choices.