Coordination model of inventory system for deteriorating items with time-varying demand based on revenue-sharing contract

This paper develops a model of coordination of inventory system in a two-stage supply chain for deteriorating items with time-varying demand related to time, sale price and initial fresh degree. It is found that under Revenue-sharing Contract, there is a unique optimal order quantity and a optimal order cycle for retailer to maximize the it´s profit, and optimal wholesale price for supplier to maximize the it´s profit. Furthermore, in an order cycle, the decrease of fresh degree leads to a less order quantity, shorter order cycle, lower wholesale price and lower average profit; the decrease of sale price leads to a more order quantity, longer order cycle, higher wholesale price, while the average profit increases first then starts to drop. Thus, both the maintaining of fresh degree and a proper sale price are vital to maximize every parties´s profit. Finally, a numerical example is given to illustrate the theoretical results of the proposed model and conduct sensitivity analysis on parameters of the proposed model.