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Logistics Between The Supplies And The Customers Demand

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The coordination between the supplies and the customers demand is an important aspect in the success of any supply chain. Poor coordination may result in poor supply chain and high cost. One of the example of this is the videocassette retailer. New arrive movies has high demand in the first weeks of the release. After a while this demand start to decrees. These retailers face the problem in the first weeks because the demand is high but it will shortly decline. At that time supplier sold videocassette to retailer for 65$ and the retailer rent it for 3$ so they hit break even after 22 rentals. For that reason retailer cannot order enough videocassette to meet initial demand or they will lose money. To overcome this problem retailer has to come with a way to meet the initial demand without losing money. Blockbuster and supplier reach a deal that will benefit both of them. The supplier agreed to sell the videocassette for less than the production cost in exchange for a portion of the rental income. In this deal blockbuster got the videocassette from the supplier for only 8$ and the breakeven dropped to 6 rentals from 22 rentals. That allow blockbuster to meet initial demand and to share the revenue with the supplier. This case inspired Martin Lariviere and Gérard Cachon to write their article “Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations,” In their article showed that revenue sharing contracts is not only limited to videocassette

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