Coordinating inventory sharing with retailer's return in the consignment contracts

Abstract

Hospitals purchase medical supplies from the dealer on consignment contracts. Dealer provides a return policy for unused inventory but charging a return fee. Two hospitals could share inventory which reduces the amount of return to the dealer. Motivated by this consignment contract policy for the medical supply chain, we develop a common dealer and two independent retailers framework that considers retailers' sharing action and return problem. We aim at developing a coordinating mechanism to manage the retailers' sharing and return action that benefits both the dealer and retailers. Dealer-dominated sharing and retailer-dominated sharing are compared from the perspective of sharing performance and expected profits. We also analyse the condition that the dealer is better off from retailers' sharing when the dealer has the power to encourage retailers' sharing, and the dealer's trading preference for a non-cooperative retailer or cooperative retailers when the dealer has no power to encourage retailers' sharing. Numerical experiments are conducted to examine the sensitivity of retailers' sharing decisions, retailers' and dealer's profit to the return price.