Strategic inventory and dynamic pricing for a two-echelon green product supply chain

Abstract

This study investigates the purchasing strategies, pricing decisions and incentive mechanism for two selling periods for a two-echelon green product supply chain with one manufacturer and one retailer. The demand for the green product is price, greenness and time sensitive. Two purchasing, a single purchasing opportunity and a two purchasing opportunity, strategies are considered, and whether the retailer maintains strategic inventory for the second selling period is also examined for the two purchasing opportunity strategy. For each purchasing strategy and for maintaining or not maintaining strategic inventory, two-price policies with or without a manufacturer rebate are investigated by comparing them with a benchmark model. The problems are formulated as two-period Stackelberg game models, and closed-form equilibrium solutions are derived through backward induction. Extensive numerical experiments are conducted to illustrate the effectiveness and robustness of the models and sensitivity analyses are performed to examine the effects of the important problem parameters on the optimal decisions. From the theoretical and numerical results, both the manufacturer and the retailer can benefit from producing and selling the green product. The two purchasing opportunity strategy is obviously superior to the single purchasing opportunity strategy since it can improve the performances for both the manufacturer and the retailer. Moreover, it is beneficial to both supply chain members when the retailer adopts the two purchasing opportunity strategy and maintains strategic inventory, and when the manufacturer provides a rebate for each unit of the product sold in the second selling period. • Study strategic inventory and dynamic pricing for a two-echelon green product supply chain. • Propose two purchasing stratigies for a retailer who may maintain strategic inventories or not. • Investigate two-price policies with or without a manufacturer rebate for each purchasing strategy. • Present closed-form equilibrium solutions together with sensitivity analyses. • Perform numerical studies to illustrate the theoretical results and provide managerial insights.