Managing Online Channel and Optimization in Supply Chain Systems With Different Channel Leaderships

Abstract

In supply chain systems, with the rapid growth of electronic commerce, a lot of firms are puzzled with the issue about how to best manage the distribution channels. In this article, we study the online channel management, pricing and coordination (i.e., optimization) in supply chains in which both channel members have an opportunity to introduce an online channel for retailing products to consumers. We focus on examining the roles of “channel leadership,” online channel decision and customer channel preference. Through systematic analysis and comparisons, we obtain some important insights, such as: 1) consumers do not care about who the channel leader is, but care about who establishes the online channel; 2) the dual-channel structure can make the manufacturer charge a “higher wholesale price” regardless of who establishes the online channel and who the channel leader is; and 3) no matter who the channel leader is, the dual-channel structure hurts the consumers’ benefit when the retailer establishes the online channel. We also illustrate how the proposed dual-channel supply chain can be optimized with the use of supply chain contracts.