Date of Award

Spring 2005

Document Type


Degree Name

Doctor of Philosophy in Transportation - (Ph.D.)


Executive Committee for the Interdisciplinary Program in Transportation

First Advisor

Jian Yang

Second Advisor

Athanassios K. Bladikas

Third Advisor

Janice Rhoda Daniel

Fourth Advisor

Lazar Spasovic

Fifth Advisor

Mahesh Kumar


This dissertation presents the use of virtual transshipments and revenue-sharing contracts for inventory control in a small scale supply chain. The main objective is to maximize the total profit in a centralized supply chain or maximize the supply chain's profit while keeping the individual components' incentives in a decentralized supply chain.

First, a centralized supply chain with two capacitated manufacturing plants situated in two distinct geographical regions is considered. Normally, demand in each region is mostly satisfied by the local plant. However, if the local plant is understocked while the remote one is overstocked, some of the newly generated demand can be assigned to be served by the more remote plant. The sources of the above virtual lateral transshipments, unlike the ones involved in real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment process. Besides the theoretical analysis for this centralized supply chain, a computational study is conducted in detail to illustrate the ability of virtual lateral transshipments to reduce the total cost. The impacts of the parameters (unit holding cost, production cost, goodwill cost, etc.) on the cost savings that can be achieved by using the transshipment option are also assessed.

Then, a supply chain with one supplier and one retailer is considered where a revenue-sharing contract is adopted. In this revenue-sharing contract, the retailer may obtain the product from the supplier at a less-than-production-cost price, but in exchange, the retailer must share the revenue with the supplier at a pre-set revenuesharing rate. The objective is to maximize the overall supply chain's total profit while upholding the individual components' incentives. A two-stage Stackelberg game is used for the analysis. In this game, one player is the leader and the other one is the follower. The analysis reveals that the party who keeps more than half of the revenue should also be the leader of the Stackelberg game.

Furthermore, the adoption of a revenue-sharing contract in a supply chain with two suppliers and one retailer under a limited amount of available funds is analyzed. Using the revenue-sharing contract, the retailer pays a transfer cost rate of the production cost per unit when he obtains the items from the suppliers, and shares the revenue with the suppliers at a pre-set revenue-sharing rate. The two suppliers have different transfer cost rates and revenue-sharing rates. The retailer will earn more profit per unit with a higher transfer cost rate. How the retailer orders items from the two suppliers to maximize his expected profit under limited available funds is analyzed next. Conditions are shown under which the optimal way the retailer orders items from the two suppliers exists.