Win–win situations in supply chain partnerships: a tutorial – sharing the gain

Supply Chain Management (SCM) is one of the key issues, trends and needs in the current business environment. The concept of SCM emphasises co-operation and collaboration among the firms within a given supply chain. The essence of this concept is that when the firms in a supply chain collaborate, it leads to a win–win situation, i.e. all firms will gain. The objective of this paper is to give a simple quantitative model that shows how and to what extent win–win situations can occur in a supply chain partnership environment. For this purpose, the paper models a situation where a manufacturer sells a fashion type of product to a retailer who in turn sells the product to the consumers. Both the manufacturer and the retailer set their own selling price. It is shown that if they set the price jointly in a partnership environment, there would be a significant improvement in total supply chain profit. Also, it is shown how the prices can be set so that the gain in profit is fairly split between the manufacturer and the retailer.