The effect of cooperative preservation technology investment in coordinating a supply chain for deteriorating items under vendor management inventory and consignment contracts

This study aims to investigate the supply chain coordination between a retailer and a manufacturer for a single deteriorating item with a controllable deterioration rate, where customer demand is a function of price and inventory level. We develop vendor managed inventory and consignment with revenue and preservation investment sharing contracts as the coordination mechanisms for enabling the exchange of information and distribution of risk among the channel members. To evaluate the impact of the contracts on channel performance, we compare the optimal solutions for preservation technology investment and pricing in cooperative and non-cooperative settings. Numerical examples and sensitivity analyses are used for model development and validation. In the non-cooperative scenario, the results show that combining the VMI and consignment contract with an additional slotting fee arrangement could promote coordination within the channel. However, in the cooperative scenario, contract implementation is more straightforward, and both members can make optimal decisions for the entire channel without requiring the slotting allowance scheme, resulting in higher profits for all participants. An appropriate sharing ratio enables joint optimization of pricing and preservation investment in the cooperative arrangements. For highly perishable products, allocating a lower sharing ratio is reasonable, as high technology investment affect profitability, making the contract a stable and fair coordination mechanism for deteriorating supply chains.