Coordinating the retail supply chain with item‐level RFID and excess inventory under a revenue‐cost‐sharing contract

Abstract

Abstract This paper considers a supply chain consisting of one supplier and one retailer who jointly invest in item‐level radio frequency identification (RFID) by considering their demands and inventories. Since the supplier can be negative to adopt RFID, the main objective of this study is to design an effective mechanism that maximizes the profits of both players and the whole supply chain by implementing item‐level RFID. For this objective, we propose a novel revenue‐cost‐sharing (RCS) contract based on the bargaining game as the incentive to encourage the implementation, and numerical results show that the RCS contract is considerably more effective than the wholesale‐price contract for supply chain coordination. Moreover, we show that the retail supply chain can be coordinated perfectly under the RCS contract when the thresholds of the revenue/cost sharing rates are set appropriately. This study provides significant managerial insight into the incentive and coordination strategy to implement item‐level RFID in the retail supply chain.

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