Joint pricing, ordering and order fulfillment decisions for a dual-channel supply chain with demand uncertainties: A distribution-free approach

Abstract

A dual-channel supply chain is considered in which a manufacturer sells its product through a traditional retailer and an e-tailer, wherein the e-tailer may adopt two, i.e., the conventional batch ordering and the drop-shipping, order fulfillment policies. The problem is modeled as Stackelberg games in which the manufacturer is the leader and the retailer and the e-tailer are the followers competing on price. Optimization models are developed and equilibrium solutions are obtained for unknown distributions of the uncertain demands through a distribution-free approach. Analytical solutions of pricing and ordering decisions are also derived when the uncertain demand is assumed to follow known distributions to evaluate the performance of the distribution-free approach. Numerical studies are conducted to evaluate the effectiveness of the distribution-free approach and sensitivity analyses are performed to examine the effects of several important parameters on the equilibrium solutions. The choice of the e-tailer and the preference of the manufacturer for the order fulfillment policies are also analyzed through numerical studies when important parameters change. The results show that the e-tailer prefers the batch ordering policy if its market share is relatively large and its profit-sharing ratio is relatively low, the manufacturer prefers the batch ordering policy if the e-tailer’s market share is relatively small and the e-tailer’s profit-sharing ratio is relatively high, and both the e-tailer and the manufacturer prefer the drop-shipping policy for other situations. The drop-shipping policy benefits the manufacturer and the e-tailer when the channel substitutability is relatively low and the demand fluctuations are relatively high.