Abstract
Purpose: The purpose of this paper is to set up the coordinating mechanism for a decentralized distribution system consisting of a manufacturer and multiple independent retailers by means of contracts. It is in the two-stage supply chain system that all retailers sell an identical product made by the manufacturer and determine their order quantities which directly affect the expected profit of the supply chain with random demand. Design/methodology/approach: First comparison of the optimal order quantities in the centralized and decentralized system shows that the supply chain needs coordination. Then the coordination model is given based on buyback cost and compensation benefit. Finally the coordination mechanism is set up in which the manufacturer as the leader uses a buyback policy to incentive these retailers and the retailers pay profit returns to compensate the manufacturer. Findings: The results of a numerical example show that the perfect supply chain coordination and the flexible allocation of the profit can be achieved in the multi-retailer supply chain by the buyback and compensation contracts. Research limitations: The results based on assumptions might not completely hold in practice and the paper only focuses on studying a single product in two-stage supply chain. Practical implications: The coordination mechanism is applicable to a realistic supply chain under a private information setting and the research results is the foundation of further developing the coordination mechanism for a realistic multi-stage supply chain system with more products. Originality/value: This paper focused on studying the coordination mechanism for a decentralized multi-retailer supply chain by the joint application of the buyback and compensation contracts. Furthermore the perfect supply chain coordination and the flexible allocation of the profit are achieved.
Highlights
Chain management seems to be a growing area of interest amongst researchers and practitioners from varied disciplines
This paper focused on studying the coordination mechanism for a decentralized multi-retailer supply chain by the joint application of the buyback and compensation contracts
Based on these literatures this paper considered a decentralized two-stage supply chain consisting of a manufacturer and multiple independent retailers, in which all retailers sold an identical product made by the manufacturer and determined their order quantities
Summary
Chain management seems to be a growing area of interest amongst researchers and practitioners from varied disciplines. Wu et al studied supply chain system consisting of one supplier and multiple retailers when the demand function and cost were disrupted simultaneously, and presented a revenue sharing contract to realize anti-disruption (Wu & Yang, 2010; Cao & Lai, 2010). Based on these literatures this paper considered a decentralized two-stage supply chain consisting of a manufacturer and multiple independent retailers, in which all retailers sold an identical product made by the manufacturer and determined their order quantities. : Profit for retailer i pi: Selling price per unit for retailer i si: Salvage cost per unit for retailer i πi: Shortage value per unit for retailer i ri: Market demand for retailer i When the demand distribution F(ri) and the density function f(ri) for retailer i are known, the expected profit for retailer i is given by (3)
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