Buyback Contract Research Articles

Supply chain network equilibrium considering coordination between after-sale service and product quality

In a highly integrated supply chain system, the trade-off between after-sale service and product quality becomes an important consideration in establishing and maintaining a sustainable supply chain partnership. To this end, we proposed an underlying decentralized supply chain network (DSCN) equilibrium model for service-quality coordination under capacity constraints and demand uncertainty. The proposed DSCN model is compared with centralized supply chain network (CSCN). Then, the buyback contract is introduced to coordinate the DSCN. After the implementation of supply chain network equilibrium (SCNE) in numerical examples, we obtain the equilibrium solution of the proposed model. The result shows that, compared with DSCN, CSCN does not always provide better service or product quality. Moreover, by introducing the buyback contract, the equilibrium profits of DSCN are improved, so that the Pareto improvement occurs. Our findings can provide useful analytical frameworks and implications for how to coordinate after-sale service, product quality, selling price, and product ordering decisions in the supply chain network simultaneously.

Supply chain coordination based on the probability optimization of target profit

Supply chain management decision-making study mainly based on the expected utility theory and most of the studies are obtaining the average values in the statistical sense. For Supply Chain (SC) decision-making individuals the statistical-based optimal profitability brings decision conflicts in the particular market within a specific period. Moreover, the small and medium outsourcing participants face unexpected outcomes which are the main cause of SCs disruption. This study proposes a contractual coordination model that maximizes the probability of a pre-determined Profit Target (PT). The purpose of this paper is to reduce the influence of demand uncertainty with the high risk of unexpected outcomes. We constructed the Revenue Sharing (RS) and buyback contract models within the SC participants’ PT conditions and then discussed the SC overall performance. We simulated and analyzed the coordination conditions and the decision-making preferences of SC participants under the two contracts. From the comparison, under the PT strategy, the retailer is more willing to adopt the RS contract rather than the buyback contract. But the SC upstream supplier's contract selection decision depends on the specific contract parameters. Finally, numerical results indicated the contract selection decisions with the given PT of both SC participants.

Manufacturer’s contract choice and retailer’s returns management strategy

Managing customer returns is a supply chain issue; manufacturers typically manage them through buyback contracts, while retailers can attempt to recover a product’s salvage value, or sell it as an open-box item. This paper investigates returns management strategies by developing a game theoretical model for a supply chain with a manufacturer (Stackelberg leader) and a retailer (the follower) facing customer returns. The manufacturer chooses either a buyback or a wholesale-price contract. Under a wholesale-price contract, the retailer either salvages or resells returned products. We identify the optimal returns management strategy. We show that each of the three strategies may achieve Pareto improvement for both supply chain members, and for the customers and society. The retailer’s choice to resell or not depends on its inspection cost, or the system efficiency of the supply chain in reselling a returned product relative to that in selling a new product. The manufacturer’s choice of contract depends on whether it can salvage a returned product more efficiently than the retailer, and on the retailer’s unit inspection cost of the returned product. We capture a few identifiable quantities and thresholds that help the manufacturer and the retailer to simplify decision making.

A novel buy-back contract coordination mechanism for a manufacturer-retailer circular supply chain regenerating expired products

The expiration of many deteriorative products imposes high costs on the supply chain. A new strategy is proposed in this paper that integrates technological capabilities and supply chain management initiatives to overcome this challenge. The technological capabilities equip the supply chain with a regenerative process to reuse the expired products in other products. On the other hand, to facilitate and optimize the application of the technology, the integration and coordination techniques of the supply chain are employed. This innovation is in accordance with the zero-waste concept arising in the circular economy era and circular supply chain. The paper focuses on integrating a supply chain consisting of one retailer and one manufacturer and developing a new buy-back coordination mechanism to provide enough incentives for the cooperation of members and encourage them to participate in the regenerating operations. It is proved that the proposed strategy is economically feasible if and only if the revenue of each unit of reused product in addition to the saving on its disposing cost, is greater than its reprocessing cost. Furthermore, it is shown that an integrated supply chain equipped with the mentioned technology earns more than one that only benefits the integrated decisions of the whole supply chain. The efficacy and intricacy of the developed model are validated in a dairy supply chain that revalues expired products by turning them into a type of fertilizer. Moreover, a thorough sensitivity analysis of the paper indicates that the mean and standard deviation of demand positively encourage the cooperation strategy while the replenishment cycle time has adverse effects on the profitability of members.

Analysis of a Single Manufacturer Multi-Retailer Inventory Competition Using Supermodular Multi-Objective Games

In this research, the optimum decision of a multi-objective inventory game problem has been investigated under strategic complementarities in a multiplayer supply chain. The supply chain comprises a single retailer and multi-retailers under the synchronization process, the wholesale contract, and the buy-back contract policy. We apply some results in supermodular multi-objective game theory to solve these problems. The optimal decision for all players is formed in two equilibria, namely the Pareto equilibrium and the weighted Nash equilibrium. For numerical results, A genetic algorithm and dominance principle elements of the payoff matrix are used to obtain the weighted Nash equilibrium and the weighted Nash equilibrium, respectively. The analytical and numerical results using the supermodular multi-objective games concept can be significant results to solve the supply chain competition problems in the industrial engineering.

On the Supply Chain Coordination with Trade Credit and Partial Backorder under CVaR Criterion

For the secondary supply chain composed of a supplier with sufficient funds and a retailer with limited funds and risk aversion, to enhance the supply chain stability and comprehensively improve benefits, the supply chain members may choose to implement a supply chain’s coordination strategy. Thus, we study the following supply chain coordination problems, i.e., the supplier provides a trade credit policy and signs a buyback contract for the surplus products with the retailer. For this, based on maximizing the benefits of supply chain members, the supply chain coordination model has been established. By analyzing two participants’ benefit, the supply chain’s optimum coordination mechanism is obtained. The theoretical results are verified by numerical experiments.

Inventory control policy for perishable products under a buyback contract and Brownian demands

In this study, we analyse the inventory management strategy for perishables, where customer demands are assumed to arrive continuously and modelled by a drifted Brownian motion. We apply the well-known (s, S) continuous review inventory policy; in this policy, an order is placed to increase the inventory level to S as soon as it falls below s. Benefitted from highly developed transportation and logistics industries, it is reasonable to employ the zero-leadtime assumption in our model. In addition, a buyback contract is granted for the retailer to recover the loss from perishing. We illustrate the sales cycle through Markov renewal approach and derive closed-form formulas for long-run profit rates. To evaluate the optimal ordering policy which maximises the profit rate of the retailer, we first analyse the condition for accepting backorder and derive the optimal backorder level s as a function of S, and then solve for the global optimal (s, S) policy through numerical studies. Moreover, we develop a heuristic approach to approximate the optimal policy. Sensitivity analyses are conducted to reveal the effect of different parameters on system behaviour. The conclusions provide managerial insights for formulating inventory policies for perishables under Brownian demand.

How increasing relative risk aversion affects retailer orders under coordinating contracts

We analyze how risk aversion affects the order-quantity decisions of a retailer for two coordinating contracts - buyback and real option. The retailer faces uncertain customer demand and makes a single order-quantity decision to maximize expected utility. We show that for a retailer with increasing relative risk aversion, orders decline in the expected profit share of the supply chain, which is determined by the parametrization of the contract. We use an exponential utility function to model a retailer with increasing relative risk aversion and test our model on existing experimental data as well as on data from a validation experiment. In our validation experiment, we link order quantities to certainty equivalents and establish risk aversion as an underlying cause for the deviation from profit maximizing quantities. Additionally, we find that under real option contracts, risk averse retailers order more than under buyback contracts.

Pricing design and contract selection with customers’ self-control: a strategic analysis

PurposeThe purpose of this paper is to examine how customers’ self-control affects their purchase decisions and to discuss the pricing decisions of the retailer under different forms of contract.Design/methodology/approachThe authors use the literature on hyperbolic discounting to model customers’ self-control problems. In this framework, the authors examine how the customers’ self-control affects the optimal pricing decision and the selection of the optimal contract form when there is a supplier and a retailer in the supply chain.FindingsThe study’s results show that when wholesale price contract is compared with buyback contract, buyback contract is better when customers’ self-control is weak; when quantity-discount contract is compared with wholesale price contract and buyback contract, although quantity discount can encourage customers to purchase more units of products, but both wholesale price contract and buyback contract can be better than quantity-discount contract in some cases. Additionally, the authors demonstrate that revenue sharing contract can increase the supply chain’s profit. The authors also find that sometimes customers’ preplan will lead to the result that the supplier produces more unhealthy products.Originality/valueTo the best of the authors’ knowledge, this is the first study to analyze the decision-making of the retailer by developing an analytical framework combining customer’s self-control and supply chain contract. These results have important implications for the supplier and the retailer that sell vice goods.

A Game-Theoretic Framework for Analyzing the Impact of Social Responsibility and Supply Chain Profitability

Supply chain collaboration plays an important role in profit maximization. Contract coordination is a successful strategy for collaboration and profit-sharing in supply chains. The study of contract coordination in supply chains under uncertainty and stochastic environmental conditions has attracted the attention of many researchers. We propose a single-period newsvendor model with one manufacturer and one retailer in the supply chains. The proposed model considers two variables, including order quantity and investment in corporate social responsibility, where the demand is stochastic and follows a normal standard distribution. The model considers quantity flexibility, advanced purchasing discounts (APDs), and buyback contracts under cooperative conditions. Numerical examples are used to exhibit the applicability of the model under various conditions, including the two-demand distribution and three coordination contracts. We demonstrate an ideal scenario where the APD contracting results in the most overall supply chain profit and increases for each supply chain partner.

Buyback and price postponement in a decentralized supply chain with additive and price‐dependent demand

AbstractWe examine buyback contracts in a dyadic supply chain where a retailer orders from a supplier before observing the random demand and sets a retail price after observing it (a.k.a. price postponement). We focus on the case with linear additive demand, which is well known to be less tractable than the case with linear multiplicative demand. With mild conditions on the distribution of demand uncertainty, we derive the supplier's optimal buyback contract and show the following results. The supplier strictly prefers buyback contracts to wholesale price‐only contracts if and only if the unit production cost is lower than a threshold that depends on the dispersion of demand uncertainty; the optimal buyback rate is decreasing in the unit production cost; the profit allocation within the supply chain and channel efficiency depend on the dispersion of demand uncertainty. These results are in stark contrast to those in the case with linear multiplicative demand. Nevertheless, the relation between the operational decisions under the optimal buyback contract and those under the optimal wholesale price‐only contract is consistent with the case of multiplicative demand. We further extend the analysis to two related scenarios. On one hand, our results continue to hold in a supply chain where one supplier sells to two competing retailers. On the other hand, when the retailer does not postpone retail pricing decisions, we establish three distinctive properties of the optimal buyback contract: the supplier strictly prefers buyback contracts to wholesale price‐only contracts if and only if the unit production cost is intermediate; the optimal buyback rate is increasing in the unit production cost in the region where the supplier strictly prefers buyback contracts to wholesale price‐only contracts; price postponement benefits both the retailer and the supply chain but does not always benefit the supplier. The above analysis shows that the supplier's preference between buyback and wholesale price‐only contracts can swing either way when the retailer starts to practice price postponement.

Universal point scheme with a platform and multiple retailers

This paper studies the universal point scheme with multiple retailers and a platform that implements the points within a channel. First, we analysed the equilibriums of the channel under the decentralised control and the mode of lateral cost-sharing among retailers. We found that retailers are willing to set the lowest point conversion ratios under the lateral cost-sharing mode compared with the decentralised and centralised control modes. The optimal conversion ratio of a retailer under the decentralised control is greater than the one under the centralised control when the cost spillover and double marginalisation are not significant. Next, we extended the model by considering the participation of new retailer. In this dynamic channel, the impact of the cost spillover phenomenon on the channel members’ preferences is discussed. Third, we showed that the wholesale price contract for point management used in the real world has a limitation in terms of profit split. Following this, we proposed a buyback contract and showed the optimal contract parameters under which the channel’s profit could be maximised and arbitrarily split. The managerial insights we obtained shed light on how to design a universal point scheme and select channel members to achieve an all-win scenario.

Pareto-Optimal Coordination and Financing Selection for a Capital Constrained Supply Chain Under a Buyback Contract

Pareto-Optimal Coordination and Financing Selection for a Capital Constrained Supply Chain Under a Buyback Contract

Pricing strategy of competing retailers in a two layer supply chain under nonlinear stochastic demand

This paper develops mechanisms to deal the strategic issue that arises in a two-echelon closed-loop supply chain comprising of one manufacturer and two competing retailers. The chain works under stochastic nonlinear demand. Here the manufacturer works as the supplier and the retailers compete with each other on the basis of their retail price. The prime objective is to investigate a news-vendor model to govern the optimal order quantity. A buyback contract between the manufacturer and retailer has been considered and scenario of shortage has also been contemplated. The profit functions of manufacturer and two retailers are analysed following centralised approach. A numerical example is given to illustrate the theoretical results. Computational results show that it is always beneficial in integrated system for the members of the chain.

Coordinating a three-stage supply chain using buy-back and revenue sharing contracts

In this research, a composite contract model is developed for coordinating a three-stage supply chain which consists of a manufacturer, a distributor and a retailer. The relationship between the distributor and the retailer is coordinated using a revenue sharing contract, while the relationship between the manufacturer and the distributor is coordinated using a buy-back contract so as to encourage the distributor to order more. Mathematical models for these contracts are derived and analysed through numerical experiments to identify the optimal order quantities, the coordination conditions, the effects of the contract parameters and to identify the best possible contract parameter values which can lead to a win-win situation.

A Financing Newsvendor Inventory Problem with Supplier Buyback Contract Based on Biased Game

In this paper, we assume that the supplier will buy-back the retailer’s unsold goods when the retailer order more than the market demand in the capital-constrained newsvendor problem, so the retailer and supplier can take on the hazard together. This system forms the biased game through the retailer and supplier making the order quantity, the supply price and buy-back price for their max-profits respectively. Furthermore, we studied the current satiation of the supply chain integration between the suppliers and the retailers. At last, a numerical example was included to illustrate the effect of the supply chain integration.

An inventory system with coordination among manufacturers and retailers under buyback contract, vertical integration, retailer’s effort and carbon footprint constraint

ABSTRACT The growing concerns about the Earth’s climate system and the increasing importance of saving raw materials are critical challenges that supply chain members mostly face, leading companies to sustainability and ‘going green’ missions. Environmentally friendly inventory management is one of the most crucial and key decisions that creates innovative methodologies to achieve green growth. Hence, in this study, we analyse a newsvendor problem among manufacturers and retailers under random demand to facilitate sustainable and green growth approaches. In our analytical model, two ways are considered to meet the needs of retailers. In the first case, the retailer orders before the sales season, so the remanufacturer will have enough time to remanufacture returned products and provide the retailer’s needs with recycled materials. In the second case, the retailer will re-order after the start of the sales season in the face of a shortage. So, the remanufacturer will not have enough time to supply the retailer with returned materials, and the retailer’s order will be met with new products using raw materials. The model intends to study the effects of carbon footprint constraints, vertical integration, buyback contract, and retailer’s sales effort on inventory control systems with remanufacturers. Furthermore, sensitivity analysis is performed, and conclusions and future research directions are provided.

Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract

This paper considers an online retailer and his or her manufacturer, both facing financial constraints and wishing to get loans from their e-commerce platform-backed finance company. Based on shared transaction data and monitored sales accounts, a tripartite loan contract is proposed to coordinate three parties’ actions in this supply chain financing problem. We prove that the proposed loan contract aligns the decentralized decision-makings of each party and duplicates the optimal channel performance under a fully integrated decision-making framework. A case study is then conducted to illustrate the performance of the proposed loan contract. The result shows that the proposed loan contract outperforms wholesale-price contracts, where coordination does not take place, and buyback contracts, where coordination happens between the retailer and the manufacturer only. Furthermore, a sensitivity analysis reveals that profit allocations among the lender, the retailer, and the manufacturer resulted from the proposed loan contract are more balanced when the cost-to-retail ratio or risk premium is high.

Wholesale price versus buyback: A comparison of contracts in a supply chain with a behavioral retailer

Traditional modeling in supply chain contract analysis shows that a wholesale price contract cannot coordinate a supply chain, whereas a buyback contract can coordinate. In this study, we consider a supply chain involving a risk-neutral supplier and a behavioral retailer under wholesale price and buyback contracts. We characterize the structural properties of the wholesale price contract in a supply chain with a behavioral retailer. Our study reveals that a wholesale price contract can coordinate a supply chain with a behavioral retailer under certain conditions. Under the same conditions, our analysis shows that a buyback contract coordinates the supply chain. Furthermore, we derive the conditions under which a buyback contract will not coordinate a supply chain involving a behavioral retailer. We validate our model with the existing experimental results on supply chain contracts. Finally, we show that a wholesale price contract can outperform a buyback contract in a supply chain having a behavioral retailer.

The anti-collusion dilemma: Information sharing of the supply chain under buyback contracts

While previous studies did not consider that buyback contracts in collusive research of supply chains and the buyback contract particularly strengthens collusion between retailers in the supply chain, we address a new research question: What is the effect of different retailer collusive patterns and information sharing mechanisms on the benefits of each member in supply chains with buyback contracts? To answer this research question, we develop four two-echelon supply chain models. The model consists of one supplier and two competing retailers. We consider the two dimensions of collusion mode and information sharing type and derive the optimal equilibrium solutions for each member. The theoretical analysis demonstrates the following results: (i) With explicit collusion, retailers are less willing to vertically share information with the supplier. (ii) Tacit collusion with low demand uncertainty motivates information sharing because the wholesale price can correctly convey the supplier’s information to retailers. (iii) Increasing the probability of high demand or reducing the buyback rate can benefit all members in the supply chain. (iv) Different from the wholesale price and revenue sharing contract, in the buyback contract, the whole supply chain sustains losses from vertical information sharing under the condition of collusion with high demand uncertainty. A numerical experiment shows interesting insights: Although explicit collusion generally brings profit improvement to retailers, they prefer to choose tacit collusion to effectively identify price signals when the demand uncertainty is lower. We check the robustness of results and find that the main results will not be changed in the extended model where the buyback price is lower than the wholesale price.