One-retailer Supply Chain Research Articles

Competitive pricing of substitute products under supply disruption

There has been an increased interest in optimizing pricing and sourcing decisions under supplier competition with supply disruptions. In this paper, we conduct an analytical game-theoretical study to examine the effects of supply capacity disruption timing on pricing decisions for substitute products in a two-supplier one-retailer supply chain setting. We investigate whether the timing of a disruption may significantly impact the optimal pricing strategy of the retailer. We derive the optimal pricing strategy and ordering levels with both disruption timing and product substitution. By exploring both the Nash and Stackelberg games, we find that the order quantity with the disrupted supplier depends on price leadership and it tends to increase when the non-disrupted supplier is the leader. Moreover, the equilibrium market retail prices are higher under higher levels of disruption for the Nash game, compared to the Stackelberg game. We also uncover that the non-disrupted supplier can always charge the highest wholesale price if a disruption occurs before orders are received. This highlights the critical role of order timing. The insights can help operations managers to proper design risk mitigation ordering strategies and re-design the supply contracts in the presence of product substitution under supply disruptions.

Optimal environmental quality and price with consumer environmental awareness and retailer's fairness concerns in supply chain

This paper focuses on the impacts of consumer environmental awareness (CEA) and retailer's fairness concerns on environmental quality, wholesale price and retail price of the green product in a one-manufacturer and one-retailer supply chain. The manufacturer produces one green product, and the green product has the environmental quality. This study compares three decision scenarios: decentralized model (Scenario1), retailer is fair-minded and incurs an unfavorable disutility (Scenario 2), retailer is fair-minded and incurs a favorable disutility (Scenario 3). Assume that the manufacturer is the leader, the retailer is the follower, we apply the backward method to solve the Stackelberg game and give the optimal solutions of the environmental qualities, wholesale prices and retail prices.Our analysis reveals that (1) retailer's fairness concerns will not change the environmental quality of the green product, and only affect the wholesale price and retail price; (2) retailer's power in the supply chain and the degree of the fairness concerns jointly determine whether the retailer benefits from the fairness concerns; (3) fairness concerns may change the trend of the retailer's profit with CEA when the retailer is concerned about favorable disutility.

Coordinating a supply chain for deteriorating items with multi-factor-dependent demand over a finite planning horizon

This study considers a one-manufacturer and one-retailer supply chain for deteriorating items over a finite planning horizon. In the case with multi-factor-dependent demand, we analyze the coordination of the system within a contract mechanism. First, we formulate and then compare a decentralized model and a centralized model. Next, we propose a revenue-sharing contract and a revised revenue-sharing contract to coordinate the decentralized supply chain. We illustrate the proposed models with a numerical example and we perform sensitivity analysis of the coordination results based on several key parameters. The results show that the supply chain’s profit in the centralized system increases by at least 13, where both contracts can coordinate the system and the fraction parameter of the revenue exists when each contract is acceptable to both members of the supply chain, and the revised revenue-sharing contract always yields a higher profit than the revenue-sharing contract. Furthermore, the supply chain’s profit under the revised revenue-sharing contract is shown to be equivalent to that with the centralized system.

Store assistance and coordination of supply chains facing consumer's return

In this paper, we develop two game theoretic models of a one-manufacturer and one-retailer supply chain to study the store assistance service decision and channel coordination mechanism, where the retailer allows consumers to return mismatching product and invests on store assistance service to reduce mismatching rate. Under manufacturer Stackelberg model, we find that the players' profits increase with mismatching rate and mismatching cost if market scale is sufficiently large. We design a quantity discount-subsidy contract to coordinate the pricing and service investment behavior of the retailer and find that the coordinated unit wholesale price increases with mismatching cost and mismatching rate if both subsidy fee and service cost are sufficiently high. By comparing with the retailer Stackelberg model, we find that (i) there exists a first-mover advantage; (ii) the unit wholesale price under retailer Stackelberg is lower than that under manufacturer Stackelberg while the retail price and service level under retailer Stackelberg is higher; and (iii) the retailer's channel leadership raises product quantity if the probability of high mismatching loss is sufficiently low. We design a two-part margin-subsidy rate mechanism to coordinate the retailer Stackelberg supply chain.

Coordinating a supply chain for deteriorating items with a revenue sharing and cooperative investment contract

In this study, a one-manufacturer–one-retailer supply chain model for deteriorating items with controllable deterioration rate and price-dependent demand is developed, in which both players cooperatively invest in preservation technology to reduce deterioration. Algorithms are designed to obtain the pricing and preservation technology investment strategies in both integrated and decentralized scenarios. It is shown that cooperative investment strategy benefits the manufacturer but damages the profits of the retailer and the whole supply chain. A revenue sharing and cooperative investment contract, which combines revenue sharing and cost sharing mechanisms, is thus designed to coordinate the supply chain. Numerical simulations and sensitivity analysis of the equilibrium strategies and coordinating results on key system parameters are given to verify the effectiveness of the contract, and meanwhile get some managerial insights. The results show that only when the revenue sharing rate lies roughly between 1/2 and 3/4 can the contract perfectly coordinate the supply chain in most cases, which has an important guiding significance for the supply chain coordination of deteriorating items when considering preservation technology investment.

Consumer environmental awareness and channel coordination with two substitutable products

This paper focuses on the impact of consumer environmental awareness (CEA) on order quantities and channel coordination within a one-manufacturer and one-retailer supply chain. The manufacturer produces two types of products: the environmental and the traditional products. These two products differ in their price and environmental quality. Based on the multi-product newsvendor model, this study compares three decision scenarios: the centralized model (M1), the decentralized model (M2), and the decentralized model with the coordination of a return contract (M3). The closed-form expressions of optimal order quantities, wholesale prices and return credits are derived for each scenario. Extending these models, we incorporate a production capacity constraint of the manufacturer. Finally, sensitivity analyses on model parameters are performed and numerical examples are provided.Our study suggests (1) the retailer’s profit monotonically increases while the manufacturer’s profit is convex with respect to CEA; (2) a return contract can help both parties to achieve the profit they could expect in the centralized model; (3) order quantity of the environmental product increases with CEA; (4) the production capacity constraint of the manufacturer does not impact order quantities of the two products if it is sufficiently large (when it is larger than two critical points); otherwise, production capacity constraint negatively changes the channel profit and order quantities; (5) our simulation study and sensitivity analyses indicate that the difference of environmental quality between the traditional and the environmental products determines whether order quantity of the traditional product increases or remains constant with respect to CEA. The firms will benefit from product customization and consumer segmentation based on the distribution of CEA in the market.

Price and leadtime competition, and coordination for make-to-order supply chains

This paper develops a game theoretic model of a one-manufacturer and one-retailer supply chain facing an outside integrated chain (manufacturer) to study the price and leadtime competition and investigate coordination of the supply chain, where the make-to-order production mode is employed and consumers are sensitive to retail price and leadtime. We find that decentralization of the supply chain increases its leadtime while decreases the rival’s leadtime; and the decentralization increases the retail prices. The existence of the outside competitor raises the leadtime. A higher reservation price or brand differentiation increases the retail prices but decreases the leadtimes; a higher transportation cost or lower leadtime sensitivity increases the retail prices and the leadtimes. The coordination of the supply chain facing integrated rival harms the integrated rival. We design contracts to coordinate the supply chain under leadtime-decision-first scenario and wholesale-price-decision-first scenario, respectively. Further, we find that the sequence of decisions affects the validity of the all-unit quantity discount scheme in coordinating the supply chain.

Coordinating price and service level decisions for a supply chain with deteriorating item under vendor managed inventory

This paper develops a Stackelberg game model of a one-supplier and one-retailer supply chain with deteriorating product to investigate how to coordinate the price and service level decisions under vendor-managed inventory (VMI) and examine system efficiency. We study the equilibrium price and service level decisions under the decentralized setting and the centralized setting, respectively; and design a generalized revenue-sharing mechanism to coordinate the supply chain. We find that the interaction between the retail price and the service level may invert the effect of deterioration rate on the retail price. The system efficiency of decentralized supply chain increases with market scale, price sensitivity, deterioration rate, the supplier's cost (including unit production cost, holding cost, and deterioration cost), and service investment efficiency, while decreases with production rate. In addition, we find that VMI may invert the effect of deterioration rate on the unit wholesale price of the decentralized supply chain; in the coordinated setting, the retailer should pay a higher transfer price to the supplier with VMI than that without VMI, the transfer price decreases with service investment efficiency, and higher service investment efficiency shrinks the transfer price difference.

Ordering policy and coordination of a supply chain with two-period demand uncertainty

We develop a two-period game model of a one-manufacturer and one-retailer supply chain to investigate the optimal decisions of the players, where stock-out and holding costs are incorporated into the model. The demand at each period is stochastic and price sharply drops in mid-life. We assume the retailer has a single order opportunity, and decides how much inventory to keep in the middle of selling season. We show that both the price-protection mid-life and end-of-life returns (PME) scheme and the only mid-life and end-of-life returns (ME) scheme may achieve channel coordination and access a ‘win–win’ situation under some conditions. The larger the lowest expected profit of the retailer, the lower the possibility of ‘win–win’ situation will be. Combined with the analysis of feasible regions for coordination policies, we find that PME scheme is not always better than ME scheme from the perspective of implementable mechanism. Finally, we find that adopting the dispose-down-to (DDT) policy can bring a larger improvement of the expected channel profit in the centralized setting, and it is interesting that by using DDT policy, double marginalization occurs only at Period 1, and however, does not plague the retailer in Period 2.

Coordinating a two-supplier and one-retailer supply chain with forecast updating

We consider the component-purchasing problem for a supply chain consisting of one retailer and two complementary suppliers with different lead-times. The retailer purchases a specific component from each supplier for assembling into a fashionable product. After ordering from the long-lead-time supplier (Supplier 1) and before ordering from the short-lead-time supplier (Supplier 2), the retailer can update its demand forecast for the product. The retailer can partially cancel its order from Supplier 1 after forecast updating. By formulating the problem as a dynamic optimization problem, we explore the measures that can be deployed to coordinate the retailer’s ordering decisions with forecast updating. We analytically show that the supply chain can be coordinated if both suppliers offer a returns policy and Supplier 1 charges an order-cancelation penalty to the retailer. We find that the coordination mechanism is independent of demand distribution and the forecast updating process. We further show that it is easier for the suppliers to coordinate the supply chain if market observation indicates the future market demand is sufficiently large. We also study the case where demand is price-dependent and propose a generalized revenue-sharing contract to coordinate the supply chain. We discuss the academic and managerial implications of the theoretical findings.

MODELING RISK OF LOSING A CUSTOMER IN A TWO-ECHELON SUPPLY CHAIN FACING AN INTEGRATED COMPETITOR: A GAME THEORY APPROACH

In a competitive market, customer decision is made to maximize his utility. It can be assumed that risk of losing a supply chain's customer can be defined based on products utility from customer point of view. This paper takes account of product's price and service level as competition criteria. The proposed model is based on non-cooperative game theory, for one-manufacturer and one-retailer supply chain facing an outside integrated-competitor. The aim of the paper is to investigate the trade-offs of responsiveness and efficiency in a supply chain. Therefore, we consider product utility from the customer point of view as an objective, along with traditional profit objective function. Three scenarios are proposed in the paper: competition based on profit gained, competition based on responsiveness to customer needs, and finally, competition based on the profit gained and responsiveness to customer needs, concurrently. Numerical examples are presented including sensitivity analysis of key parameters. We illustrate that the relative importance that player considers for profit compared to the risk of losing customer plays a critical role in supply chain prosperity.

Coordination of a Supply Chain with Advertising Investment and Allowing the Second Ordering

This paper develops a game theoretic model of a one-manufacturer and one-retailer supply chain allowing the second ordering to investigate how to coordinate the order quantity and advertising investment via a markdown money-cooperative advertising contract. We focus on the effects of allowing the second ordering on equilibrium outcome and coordination mechanism. We find: the relationship between the unit wholesale prices and the chargeback rate depends on whether allowing the second ordering; the coordination mechanism is robust to demand uncertainty; the unit wholesale price in period 2 increases with the unit production cost in period 2, the unit delayed delivery cost and unit salvage value if and only if the chargeback rate is sufficiently small while that in period 1 is independent of them. In addition, we study the Pareto condition of coordination mechanism under which both manufacturer and retailer are better off using the coordination mechanism and find that the unit production costs in different periods may have contrary effects on the bounds of Pareto range.

Risk sharing and information revelation mechanism of a one-manufacturer and one-retailer supply chain facing an integrated competitor

This paper develops an information revelation mechanism model of a one-manufacturer and one-retailer supply chain facing an outside integrated-competitor under demand uncertainty. We investigate how the manufacturer designs a wholesale price-order quantity contract to induce the retailer to report his risk sensitivity information truthfully. We try to explore the effects of the outside competitor and the risk-sharing rule on the optimal price-service level decisions of the retailer and the optimal wholesale prices of the manufacturer. We find that the strategic interaction plays an important role in the effect of risk sensitivity on the order quantity for the retailer. When the fraction of the risk cost shared by the manufacturer is sufficiently large (small), the optimal wholesale price for the high risk-averse retailer is higher (lower) than that for the low risk-averse retailer.

Side-payment contracts in two-person nonzero-sum supply chain games: Review, discussion and applications

This paper investigates supply chain coordination with side-payment contracts. We first summarize specific side-payment contracts and present our review on the literature that developed general side-payment schemes to coordinate supply chains. Following our review, we discuss two criteria that a proper side-payment contract must satisfy, and accordingly introduce a decision-dependent transfer payment function and a constant transfer term. We present the condition that the transfer function must satisfy, and use Nash arbitration scheme and Shapley value to compute the constant transfer term and derive its closed-form solution. Next, we provide a five-step procedure for the development of side-payment contract, and apply it to four supply chain games: Cournot and Bertrand games, a two-retailer supply chain game with substitutable products and a one-supplier, one-retailer supply chain. More specifically, for the Cournot game, we construct a linear transfer function and a constant side-payment to coordinate two producers. For the Bertrand game, we build a nonlinear transfer function which is equivalent to a revenue-sharing contract, and show that the constant term is zero and two firms in the game equally share the system-wide profit. For a supply chain with substitutable products, we present a side-payment contract to coordinate two retailers. For a two-echelon supply chain, we develop a proper side-payment scheme that can coordinate the supply chain and also help reduce the impact of forward buying on supply chain performance.

Supply chain coordination with demand disruptions

The purpose of this paper is to investigate an one-supplier–one-retailer supply chain that experiences a disruption in demand during the planning horizon. While demand uncertainty has long been a central research issue in supply chain management, little attention has been given to disruptions once the production plan has been made. In this paper, we show that changes to the original plan induced by a disruption may impose considerable deviation costs throughout the system. One of our general goals is to analyze these costs. When the production plan and the supply chain coordination scheme are designed in a static manner, as is most often the case, both will have to be adjusted under a disruption scenario. Using wholesale quantity discount policies, we derive conditions under which the supply chain can be coordinated so that the maximum potential profit is realized. Our results are applicable for both centralized and decentralized decision-making.