Supply Chain Coordination Using a composite contract based on Buy Back and Revenue Sharing contracts

Supply chains (SC) are generally complex and are characterized by numerous activities spread over multiple functions and organizations which pose interesting challenges for effective SC coordination. To meet these challenges, SC members must work towards a unified system and coordinate with each other. In a decentralized system, supply chain members make decision regardless of their decision s effect on the performance of the other members and the entire supply chain. This is the key issue in supply chain management, that the mechanism should be developed in which different objectives should be aligned, and integrate their activities to optimize the entire system. So, a mechanism is required to streamline the whole supply chain and motivate all the members to be a part of the entire supply chain for sharing risks and rewards through supply chain contracts. In this article we introduce a composite (CP) contract for a two-stage supply chain under advertising and price dependent demand by organically combining two component contracts: a Buy Back (BB) contract and a Revenue Sharing (RS) contract. The models will be solved using game theory, Cooperative and Nash equilibrium. Finally numerical examples are presented indicating that the more sensitivity of demand to price and advertising increases, the less profit is achieved.