Total Profit Of Supply Chain Research Articles

소매상의 비합리성을 고려한 공급사슬의 수익 공유 계약 설계에 대한 연구

Irrational ordering decisions of supply chain members have been gaining growing importance in the area of supply chain management. Irrational ordering behaviors that deviate from the profit maximizing decisions in the newsvendor settings have observed with human experiments in recent research. These behaviors can be modeled with several typical decision bias elements. This bias in ordering decisions affects the performance of supply chain contracts designed based on the assumption that the supply chain members make optimal decisions, making it necessary to design supply chain contracts by considering the irrationality. The purpose of this research is to derive a method to design the revenue sharing contract that considers human irrationality in ordering decisions. This research considers a simple two-echelon supply chain consisting of one supplier and one retailer, where the supplier is assumed to be perfectly rational while the retailer making newsvendor type ordering decisions displays irrational ordering behaviors. Under this environment, this research analytically models the revenue sharing contract to maximize the total supply chain profit or the supplier’s own profits while considering the three decision bias patterns of the retailer, which include the pull-to-center effect, the prospect theory, and the increased subjective sensitivity to the revenue sharing ratio. Irrationality parameters are measured through human experiments based on which and through numerical simulations, we showed that significant improvements in the supply chain performance can be achieved.

Designing structured supply contracts under demand and price uncertainty in an open supply chain

This paper develops an integrated model for analyzing and designing structured supply contracts from the perspectives of the buyer, the supplier, and the entire supply chain in an open supply chain. We first present a flexible framework that encapsulates a wide range of contracting types that have been studied previously. We then introduce the concept of relative contract value vis-a-vis a reference alternative, which facilitates addressing explicitly both the demand uncertainty and the price uncertainty within which real supply relationships operate. To guide practitioners in designing optimal supply contracts, we derive closed-form expressions for optimal contract structure, quantity commitment and flexibility, pricing, and sharing policy as well as the conditions to maximize total supply chain profitability associated with a contract. Our research demonstrates that structured contracts consisting of several fixed and/or flexible components are capable of maximizing total supply chain profit and allocating profit between contracting parties arbitrarily.

Contingency planning during the formation of a supply chain

With today’s growing number of geographically dispersed facilities amplifying the likelihood of supply disruptions, contingency planning has become an important strategic issue for manufacturers and distributors. This paper studies how the addition of reserve capacity in the supply chain—one of the most common strategies in contingency plans against supply disruption—can alleviate the effects of supply disruption on product and income streams and total supply chain profit. We also perform a preliminary study to find the potential implications of utilizing excess production capacity for alternative uses particularly when a firm tries selling some of its intermediate products to an external buyer who in turn could process them into finished products and compete with the firm in the same markets. We formulate a network design optimization model for supply chain contingency planning and present a decomposition procedure which exploits the natural separation between the logistics and pricing decisions in the model. Computational results are presented.

An Approach to Improve Supply Chain Profit Through Buy-Back Contract with Reference to a Book Publishing Firm

The purpose of this paper is to investigate the existing practices of buy-back contract adopted by a book publishing firm and the amount of profit gained by the publisher and a distributor as also the total supply chain profit generated under the current contract. The study was carried out in a leading book publishing firm based in India. It has considered the publisher and a distributor based in northern zone of India as two partners in the supply chain acting as a single supplier and a single retailer respectively. The forecast demand of a book is estimated based on qualitative and quantitative factors and thereafter the print-run quantity and volume of returns is determined based on its estimated demand, variability of demand and critical ratio. Finally the optimum buy-back price is found out which maximizes the profit of both publisher and distributor and also the overall supply chain profit.

Demand disruption and coordination of supply chain via effort and revenue sharing

This article explores the equilibrium behaviour of a basic supplier–retailer distribution channel under demand disruption via effort and revenue sharing contract. This differs from the traditional supply chain coordination model. Firstly, demand is simultaneously affected by retail price and nonprice marketing effort from manufacturers and retailers. Secondly, when the demand is disrupted, this article considers disruptions in the market scale and price sensitivity coefficient. Thirdly, the supply chain coordination model is proposed via effort and revenue sharing contract. In this way, the manufacturer reduces the wholesale price as an incentive for the retailer to share revenue. Finally, the total supply chain profit is greater with contract than no contract. This also constitutes another incentive for the players to follow the effort and revenue sharing contract.

A note on “Coordinating a supply chain for deteriorating items with a revenue sharing and cooperative investment contract”

In this short note, we first improve the proof in Zhang et al. [1] to show the strict concavity of the unit time total profit of the whole supply chain with respect to preservation technology investment without approximation. We then generalize the model of Zhang et al. [1] to a broader class of market demand functions. Additionally, theoretical results are provided to illustrate the features of the proposed model.

Supply chain coordination under asymmetric production cost information and inventory inaccuracy

In this paper, considering a supply chain subject to stochastic demand, we present a newsvendor model to study the game process between a supplier owning private cost information and a retailer suffering from inventory inaccuracy problem. We present that by setting the contract parameters appropriately, both partners have the right incentive for maximizing the total supply chain profit: the supplier share information actively by choosing the contract designed for his marginal production cost, while the retailer׳s rational decision concurs with the overall optimal decision. We further study the supply chain performance and the interval of the coordinating contract parameters under different situations by illustrating the model through some numerical assumptions, establishing and highlighting the conditions under which the RFID technology is preferable to the system.

Reactive Production with Preprocessing Restriction in Supply Chains with Forecast Updates

This study considers a two-mode production system that allows the supply chain to utilize a fast reactive production with improved demand information before the selling season. However, the reactive production quantity is limited by the required preprocessing decision before the demand information is updated. The condition under which adding a reactive production is beneficial to the supply chain depends on the demand forecast updating process, besides the cost parameters. To illustrate the benefit of this system, the two-mode production system is compared with two single-mode production systems, one that is purely speculative and the other purely reactive. In addition, a pricing contract with a return policy is demonstrated to efficiently coordinate the supply chain since the contract allows the maximization and arbitrary allocation of the total supply chain profit. Contrary to the results in existing literature, this result continues to hold whether demand information is known to the manufacturer or not. Numerical examples demonstrate that the benefit of the two-mode production can be as large as 104% when the preprocessing limit exists.

A mixed integer nonlinear programming model and heuristic solutions for location, inventory and pricing decisions in a closed loop supply chain

We analyze a network design problem for a closed-loop supply chain that integrates the collection of the used products with the distribution of the new products. We present a mixed integer nonlinear facility location-inventory-pricing model to decide on the optimal locations of the facilities, inventory amounts, prices for new products and incentive values for the collection of right amount of used products in order to maximize the total supply chain profit. We develop heuristics for the solution of this model and analyze the effectiveness of these heuristics and the effects of the parameters on this system through numerical experiments.

Coordinating a Dual-Channel Supply Chain Under Equal-price Mechanism When Demand Disruption Occurs

This paper studies a two-stage dual-channel supply chain composed of one manufacturer and one traditional retailer. The manufacturer has its own online channel when he sells its product to the offline retailer. There exists a Stackelberg game between the manufacturer and the traditional retailer, in which the manufacturer is the leader and the traditional retailer is the follower. The manufacturer sets the online retail price which is the same as the offline retail price. When the supply chain is in static (undisrupted) scenario, its Pareto improvement can be obtained and it can be coordinated by the two-part-tariff contract with one-time transfer payment. When disruptions make the market scale change, the supply chain performance such as the optimal retail price, the optimal production quantity and the optimal total supply chain profit under different demand disruptions in the centralized supply chain can be obtained. Then, we find that there exists certain robustness in the manufacturer’s production quantity. When the supply chain is decentralized, the supply chain coordination can be obtained by changing the wholesale price and one-time transfer payment according to different disruption levels. Finally, some numerical examples are presented to illustrate the results.

The More Supply Chain Control Power, the Better? A Comparison among Four Kinds of Cooperation Models

This paper introduces the parameter of supply chain control power into existing supply chain coordination models and explores the impacts of control power on the profits of manufacturer, retailer, and the overall supply chain under four modes of decision-making, including the decentralized decision-making dominated by manufacturer, the decentralized decision-making dominated by retailer, centralized decision-making, and Nash negotiation decision-making. Some significant conclusions are obtained. Firstly, supply chain control power does have great impact on the supply chain profits. The profit of the whole supply chain with centralized decision-making is higher than those of the other three modes, while the overall profit of supply chain with decentralized decision-making is superior to the profit when retailer and manufacturer dominate the supply chain together. Secondly, with decentralized decision-making, for manufacturer and retailer, it is beneficial to gain the control powers of the supply chain; however, control power has an optimal value, not the bigger, the better. Thirdly, under certain circumstances, order quantity will increase and the wholesale price will decrease when control power is transferred from manufacturer to retailer. In this case, the total profit of supply chain dominated by retailer will be greater than that dominated by manufacturer.

Optimal Decisions and Coordination Mechanisms for a Fresh Agricultural Product Supply Chain System

For a one-supplier-one-retailer agricultural product supply chain, quantity and quality of the agricultural products often reduce because their own perishable and anthropogenic factors in the process from the supplier via the retailer to final consumers. This paper takes shortage and deterioration factors into account, establishes related profit functions of the supplier and the retailer, obtains the optimal ordering cycle and quantity decisions, and analyzes the impact of deterioration on decision makers under the decentralized system. To maximize the total profit of supply chain, we explore coordination mechanisms for the supply chain when considering shortage and deterioration factors, such as revenue sharing contract, quantity discount contract and buy-back contract. By comparing these different contracts, the coordination effect is analyzed in details. Finally, through series of numerical analysis, some managerial insights are provided.

Selling to a Competing Buyer with Limited Supplier Capacity

We study the optimal distribution strategy of a supplier with limited capacity. The supplier may adopt the supplier only role, be the solo seller in the market, or use the dual channel strategy and compete with its downstream buyer. In comparison to the case of unlimited capacity, we show that the supplier and the buyer, and consumers may all benefit from the supplier’s limited capacity at the same time, leading to a “win-win-win” outcome. We also find that, under limited capacity, the downstream buyer may strategically withhold some supply from being sold to the market even if there is no underlying supply-side or demand-side uncertainty. Our result points to a new form of strategic purchasing behavior by the buyer in the face of upstream and downstream competition. Interestingly, we show that while buyer withholding is always beneficial for the supplier, it may even reduce the buyer’s profit under certain cases. Further, when buyer withholding occurs, it eliminates the double marginalization effect and total supply chain profit is the first-best outcome. Finally, in contrast to intuition, we find that the supplier’s benefit from investing in direct selling capability is higher when its capacity size is moderate and not large.

Optimal decisions in a dual-channel supply chain under simultaneous demand and production cost disruptions

This paper studies the pricing strategies in centralized and decentralized dual-channel supply chains. It first discusses that production cost and demand disruptions are highly correlated, and they influence the pricing and production decisions. Therefore, both disruptions should be considered simultaneously. A game-theoretical method is proposed to drive optimal wholesale and retail price for manufacture and retailer under these disruptions. Then, it is shown that the optimal prices are affected by sharing demand for the direct channel in both centralized and decentralized problems. Moreover, this paper models the dual-channel supply chains with production cost and demand disruptions in two structures, disruptions increasing/decreasing the demand. The models are then solved using the KKT conditions. Finally, a numerical example is presented to show total profit of supply chain for each structure.

Optimization Decision Promotion Model of Supply Chain Networks with Logistics Speed

Commercial logistics speed has the dynamic characteristics of the impact on supply chain. In order to establish the relationship between logistics speed and supply chain network decision model, accurately grasp the logistics effect on supply chain decision, an optimization decision model of supply chain networks with logistics layer weighting was proposed. The whole complex network model of hierarchical supply chain was established. The product pricing and logistics strategies and optimization decision were proposed for realizing the maximum total profit. The simulation results show that the optimal decision model is shown in small world property, and it can reflect the product consumption demand reality effectively, the total profit of the whole supply chain is significantly increased compared with the traditional method, and the network system is adaptive and robust.

Enabling Opportunism: Revenue Sharing when Sales Revenues are Unobservable

We consider a supply chain with a supplier that sells to a retailer under a revenue‐sharing arrangement. Demand is uncertain and unobservable to the supplier. We assume that the retailer is rational, that is, the retailer behaves opportunistically and underreports sales revenues to the supplier whenever such underreporting is profitable. Assuming the supplier has the ability to audit the retailer and learn about the actual sales revenues, we show that the supplier will never find it optimal to audit to the point that ensures truthful reporting for all demand realizations. By committing to an auditing policy, the supplier can exploit retailer opportunism and derive profits that at times even exceed those that could be obtained when dealing with a retailer that always strictly adheres to the agreed‐upon contract terms. We also show that the retailer's opportunistic behavior can increase total supply chain profits.

Allocating the cost of the carbon footprint produced along a supply chain, among the stakeholders involved

Greenhouse gas emissions are widely considered nowadays one of the main causes for global climate change. Every product's supply chain consists of several energy usage processes. Three new approaches (end-userpays; production based; and profit based) regarding the allocation of the cost related to the carbon footprint (CF) produced, among producers and users are being presented. These approaches vary according to the ‘blame’ attached to each stakeholder involved, during the several phases of the ‘product's’ life cycle. According to the first approach, CO2 emissions occur as the need for the product/service exists. The second approach allocates the CF production-related cost in each step of the supply chain according to not only how much of this CF is produced in each step, but considering also the CF produced in the previous steps. The allocation follows the profit rate (profit/selling price) of each step of the supply chain. At the third approach, the profit rate used has to do with the profit of each step compared to the total profit of the entire supply chain. To achieve a socially fair price of a product, all stakeholders involved should pay their fair shares, to guarantee that all costs related to the product's supply chain are being fully recovered.

Transferring and sharing exchange-rate risk in a risk-averse supply chain of a multinational firm

This paper analyzes risk management contracts used to handle currency risk in a decentralized supply chain that consists of risk-averse divisions in a multinational firm. Particular contracts of interest involve transferring risk to a third party by using risk-transfer contracts such as currency options and re-arranging risk between supply chain members using risk-sharing contracts. Due to decentralization, operational and risk management decisions are made locally; however, a headquarter who is interested in total supply chain profit has some controllability over those activities. We question if each kind of risk management contract can improve the utility of all supply chain members compared to the utility without any of those, and how the conditions to achieve such improvements are different. Further structural differences are investigated via sensitivity analysis with respect to the transfer price, the variability of exchange rates, and the location of the headquarter. We also find that using the two kinds of contracts jointly does not necessarily result in better outcomes.

Distributional and Peer‐Induced Fairness in Supply Chain Contract Design

Members of a supply chain often make profit comparisons. A retailer exhibits peer‐induced fairness concerns when his own profit is behind that of a peer retailer interacting with the same supplier. In addition, a retailer exhibits distributional fairness when his supplier's share of total profit is larger than his own. While existing research focuses exclusively on distributional fairness concerns, this study investigates how both types of fairness might interact and influence economic outcomes in a supply chain. We consider a one‐supplier and two‐retailer supply chain setting, and we show that (i) in the presence of distributional fairness alone, the wholesale price offer is lower than the standard wholesale price offer; (ii) in the presence of both types of fairness, the second wholesale price is higher than the first wholesale price; and (iii) in the presence of both types of fairness, the second retailer makes a lower profit and has a lower share of the total supply chain profit than the first retailer. We run controlled experiments with subjects motivated by substantial monetary incentives and show that subject behaviors are consistent with the model predictions. Structural estimation on the data suggests that peer‐induced fairness is more salient than distributional fairness.

Turn-and-Earn Incentives with a Product Line

When manufacturers do not have sufficient capacity to meet demand and cannot increase prices, they have to determine other methods to allocate goods among retailers. A common allocation mechanism is based on a retailer's sales history: a retailer that has ordered larger quantities in the past should get a greater allocation than a retailer that has historically ordered smaller quantities. This mechanism, known as a turn-and-earn allocation rule, is commonly used in many industries such as automobiles, microprocessors, video game consoles, etc. The existing literature has considered the effect of turn-and-earn allocation rules when a manufacturer sells a single product. However, when we consider a product line, it is not clear whether the manufacturer is better off basing its allocation on the sales history of the entire product line or solely on the sales history of the product in short supply. In particular, a shortage of one product can lead retailers and consumers to move toward other products in the line. This, in turn, can have an effect on the manufacturer's optimal allocation mechanism. We examine this issue by developing a model of a supplier selling two substitutable goods through two retailers. Within this setup, we introduce a general turn-and-earn allocation rule that allows the entire sales history to influence allocation levels. Counter to previous work, we show that certain turn-and-earn rules not only help the manufacturer but can also help the retailer and increase total supply chain profits. This paper was accepted by Martin Lariviere, operations management.