Profit allocation in supply chains on the basis of revenue-sharing rates

Abstract: Supply chain coordination with contract types is a wide area of cooperation of supply chain members. Although several approaches and models have been developed in the recent decades, supply chains rarely tend to take academic advice; more practice-oriented analyses and empirical research are needed in this topic. The topic is analyzed basically from theoretical point of view and most of the researchers do not consider the behavioral elements connected to contract types. In this paper an approach is introduced that keeps the conventional decentralized setting of wholesale price but shifts to a fairer setting with the use of the revenuesharing contract type. This approach is demonstrated through a mathematical model that could help the decision-makers in describing and understanding the phenomenon. We consider the recommended model as an innovative one because in today’s turbulent world a manager make decisions mainly on the basis of costs and profits and makes agreements by using their negotiation power and behavioral or other soft management elements are suppressed. Our analysis highlights that our model ensures fairer profit allocation among the supply chain members if their goals in cooperation can be moved to the direction of a long-term approach. The supply chain was modeled as a sequential one. It was also introduced in this paper that the topic is wider because of the legal regulations of transfer pricing between supply chain members