Abstract
We consider a two-stage supply chain with one supplier and one retailer. The retailer sells a product to customer and the supplier provides a product in a make-to-order mode. In this case, the supplier’s decisions on service time and service level and the retailer’s decision on retail price have effects on customer demand. We develop optimization models to determine the optimal retail price, the optimal guaranteed service time, the optimal service level, and the optimal capacity to maximize the expected profit of the whole supply chain. The results of numerical experiments show that it is more profitable to determine the optimal price, the optimal guaranteed service time, and the optimal service level simultaneously and the proposed model is more profitable in service level sensitive market.
Highlights
Increased competition has driven firms to introduce new products in the market, and service time has evolved as the competitive paradigm [1, 2]
On the basis of these experiments, we conclude that the proposed model is more profitable in service level sensitive market
We considered a two-stage supply chain with one supplier and one retailer
Summary
Increased competition has driven firms to introduce new products (or services) in the market, and service time (lead time) has evolved as the competitive paradigm [1, 2]. A logistics service provider charges more in transportation costs to an express delivery user compared to a regular delivery user Likewise, firms differentiate their products based on service times in order to maximize the firm’s revenue [6]. The potential for increased demand and price premium creates an incentive for firms to reduce the length of the service time While this strategy may attract customers, there is a risk that demand may exceed the firms’ capacity to respond. The retailer sells a product to customer and the supplier provides a product in a make-toorder mode In this case, the supplier’s decisions on service time and service level and the retailer’s decision on retail price have effects on customer demand.
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