Supply chain contracting coordination for fresh products with fresh-keeping effort

Purpose – Fresh product loss rates in supply chain operations are particularly high due to the nature of perishable products. This paper aims to maximize profit through the contract between retailer and supplier. The optimized prices for the retailer and the supplier, taking the fresh-keeping effort into consideration, are derived. Design/methodology/approach – To address this issue, we consider a two-echelon supply chain consisting of a retailer and a supplier (i.e., wholesaler) for two scenarios: centralized and decentralized decision-making. We start from investigating the optimal decision in the centralized supply chain and then comparing the results with those of the decentralized decision. Meanwhile, a fresh-keeping cost-sharing contract and a fresh-keeping cost- and revenue-sharing contract are designed. Numerical examples are provided, and managerial insights are discussed at end. Findings – The results show that (a) the centralized decision is more profitable than the decentralized decision; (b) a fresh product supply chain can only be coordinated through a fresh-keeping cost- and revenue-sharing contract; (c) the optimal retail price, wholesale price and fresh-keeping effort can all be achieved; (d) the profit of a fresh product supply chain is positively related to consumers’ sensitivity to freshness and negatively correlated with their sensitivity to price. Originality/value – Few studies have considered fresh-keeping effort as a decision variable in the modelling of supply chain. In this paper, a mathematical model for the fresh-keeping effort and for price decisions in a supply chain is developed. In particular, fresh-keeping cost sharing contract and revenue-sharing contract are examined simultaneously in the study of the supply chain coordination problem

Capacity Manipulation and Menus of Two Part Tariff Contract in Supply Chain

In a decentralized supply chain, raw material supply uncertainty, phantom orders of downstream firm as well as huge investment sunk costs leads to supplier's production capacity manipulation behavior. A supply chain consisting of a supplier and a retailer who faces a newsvendor problem is considered. The impact of supplier's production capacity manipulation on retailer's purchase decision is discussed. The retailer can adopt a menu of two part tariff contract regarding the terms of trade and capacity. Both supplier and retailer have prior belief about counterpart decision behavior. Then, we construct menus of two part tariff contract offered by the retailer to the supplier who has production capacity manipulation and type dependent reservation profits. Our results show that when capacity difference between type H supplier and type L supplier is higher than a critical threshold, the retailer offers two kinds of optimal menus of two part tariff contract in view of reservation profits difference between the type H supplier and type L supplier, and that both supplier and retailer's prior belief about counterpart decision behavior affect optimal menus of two part tariff contract. Finally, a case study shows our conclusions

Optimization of a Dual-Channel Retailing System with Customer Returns

A plethora of retailers have begun to embrace a dual-channel retailing strategy wherein items are provided to consumers through both an online store and a physical store. As a result of standards and competitive measures, many retailers provide buyers who are unhappy with their purchases with the ability to achieve a full refund. In a dualchannel retailing system, full reimbursements can be done through what is called a crosschannel return, when a buyer purchases a product from an online store and returns it to a physical store. They can also be done through what is called a same-channel return, when a buyer purchases a product from a physical store and returns it back to the physical store, or purchases a product from an online store and returns it back to the online store. No existing research has examined all common types of customer returns in the context of a dual-channel retailing system. Be notified that the practice of cross-returning an item purchased from the physical store back to the online store is not common. Thus, it is not considered in this dissertation. We first study the optimal pricing policies for a centralized and decentralized dual-channel retailer (DCR) with same- and cross-channel returns. We consider two factors: the dual-channel retailer’s performance under centralization with unified and differential pricing schemes, and the dual-channel retailer’s performance under decentralization with the Stackelberg and Nash games. How dual-channel pricing behaviour is impacted by customer preference and rates of customer returns is discussed. In this study, a channel’s sales requests is a linear function of a channel’s own pricing strategy and a cross-channel’s pricing strategy. The second problem is an extension of the first problem. The optimal pricing policies and online channel’s responsiveness level for a centralized and decentralized dual-channel retailer with same- and cross-channel returns are studied. Indeed, the online store is normally the distribution centre of the enterprise and is not limited to the customers in its neighbourhood. Also, the online store experiences a much higher return rate compared to the physical store. Thus, it has the capability and the need to optimize its responsiveness to customer returns along with its pricing strategy. A channel’s sales requests, in the second problem, is a linear function of a channel’s own price, a crosschannel’s price, and the online store’s responsiveness level. The third problem studies the dilemma of whether or not to allow unsatisfactory online purchases to be cross-returned to the physical store. If not properly considered, those returns may create havoc to the system and a retailer might overestimate or underestimate a channel’s order quantity. Therefore, we study and compare between four vi different strategies, and propose models to determine optimal order quantities for each strategy when a dual-channel retailer offers both same and cross-channel returns. Several decision making insights on choosing between the different cross-channel return strategies and some properties of the optimal solutions are presented. From the retailer’s perspective of outsourcing the e-channel’s management to a third party logistics and service provider, we finally study three different inventory strategies, namely transaction-based fee, flat-based fee, and gain sharing. For each strategy, we find both channels’ optimal inventory policies and expected profits. The performances of the different strategies are compared and the managerial insights are given using analytical and numerical analysis. Methodologies, insights, comparative analysis, and computational results are delivered in this dissertation for the above aforementioned problems

Supply Chain Coordination under Advance-purchase Discount Contract with Sales Effort and Transshipment

In today’s business environment, a competition is no longer about competing between firms, but between supply chains. Improving supply chain’s performance has become necessary for companies to survive. Supply chain coordination ensures a maximumperformance of a supply chain. This dissertation studies impacts of an advance-purchase contract and supply chain coordination in two different supply chains.We first consider the supply chain with the manufacturer and retailer who can exert sales effort to stipulate demand. We develop the contract that combines the advance-purchase contract and the target rebate contract to coordinate the retailer’s ordering and effort decisions. We analytically show that supply chain coordination is achievable, but profit splitting may not be fully flexible depending on market conditions.We second consider the supply chain with the manufacturer and two retailers who can transship products to satisfy unmet demand as a result of an inventory shortage. We establish a new mechanism that integrates the advance-purchase contract to coordinate the supply chain. The coordination mechanism follows in two steps: it first aligns the objective of the retailer group with the objective of the supply chain, and second aligns the individual objective of each individual retailer with the joint objective of the retailer group. We analytically show that supply chain coordination and arbitrary profit split is achievable.The coordinating contracts lead to Pareto improving situations. The numerical analyses show the performance improvement of the supply chain from the inclusion of the advance-purchase contract. We also conduct the sensitivity analyses to see the impacts of the contract terms on the retailers’ optimal decisions, and the impacts of market conditions on the contracts. The potential future research directions for both studies are also discussed.Industrial Engineering & Managemen

Using risk sharing contracts for supply chain risk mitigation: A buyer-supplier power and dependence perspective

The paper aims to understand buyer-supplier power and dependence scenarios following a risk sharing contract. The study develops a supply chain risk sharing contract to mitigate demand uncertainty and price volatility related risks in a globalised business environment. An integer programming model is developed and analysed following an automotive case study to generate insights into buyer-supplier relationships. Multiple buyer-supplier power and dependence scenarios are considered to reflect the possible leverages involved in the decision-making. The situational strength evaluated through buyer-supplier power and dependence illuminates the inherent complexity in contract negotiation. Thus there is an evident need to develop risk sharing contracts for mitigating global risks. The developed relationship framework and risk sharing contract model are expected to help SC managers in better understanding behavioural aspects during contract negotiations. The risk sharing contract model proposed here also contributes to a potentially novel perspective on existing theory in buyer-supplier power and dependence by providing a relational perspective on the dynamics of supply chain design and collaboration

Supply Chain Risk Assessment for Perishable Products Applying System Dynamics Methodology - A Case of Fast Fashion Apparel Industry

With the fast progress of science and technology and with the continuously growing customer expectations, share of merchandise exhibiting characteristics of perishability is on the rise. Perishable products, through their own nature, are subject to decay, deterioration or obsolescence. As a result, their usefulness, value or functionality is gradually reduced or even lost in a short window of time and cannot be regained if it is not used or sold within a specific time window. When producing perishable products, all stages of the supply chain are exposed to much higher uncertainty than in the case of durable products, which directly means higher risk. The phases of inventory planning, lead time control, and demand forecasting for perishable products play a critical role in the overall effectiveness of the supply chain. For this reason, the system dynamics methodology, a simulation and modeling technique developed specifically to address the long term and dynamic management issues, is adopted in this study. The focus of the proposed model is on the interaction between physical processes, information flows and managerial policies of a three-level supply chain for perishable products, in general, and fast fashion apparel supply chain, in particular, so as to create the dynamics of the variables of interest. The values of supply chain key factors such as, for example, inventory, backlogs, stock-outs, forecast error, cost, and profit for each time period are some of the outputs of the proposed model. Moreover, the Conditional Value at Risk (CVaR) measure is applied to quantify and analyze the risks associated with the supply chain for this type of product and also to determine the expected value of the losses and their corresponding probabilities. With the focus on three prominent categories of risks including risks of delays, forecast, and inventory, multiple business situations for effective strategic planning and decision making are generated and analyzed

COOPERATION OR COMPETITION: A STUDY OF SOCIAL CAPITAL AND PRODUCTION DECISION UNDER POTENTIAL VERTICAL COMPETITION

Since the 2000s when retailers recognised the huge market potential, the growth of private labels has been unstoppable worldwide. As a result of the recession of national brands, manufacturers are in a relatively weaker position when dealing with large retailers. The relationship between manufacturers and retailers has transformed from pure cooperation to a delicate balance of cooperation and competition. Yet, how such a balance influences supply chain dynamics is an intriguing and overdue issue. This thesis explores the influence of social capital over manufacturers’ perceptions regarding their retailers’ trustworthiness in the presence of potential vertical competition, as well as the consequential performance from the perspective of cognitive abilities. Data was collected through an online scenario-based role play (SBRP) experiment, where 371 participants were recruited and put in three groups. In each group, participants were provided with a scenario depicting the product substitution level between a newly launched private label and a national brand. The data was analysed statistically to test the hypotheses. The results identify relational capital as the most influential dimension of social capital in suppressing manufacturer’s perception of opportunistic information sharing behaviour from retailers, and suggest that such suppression is moderated by the level of product substitution between private labels and national brands. This thesis has reference value to academia by looking into the overlapping issues of supply chain management and marketing and providing empirical evidence of the influences induced by the introduction of private labels. It also benefits industry, especially manufacturers, by giving a brief standard regarding whether to cooperate or compete when faced with potential vertical competition with retailers

Supply Chain

Traditionally supply chain management has meant factories, assembly lines, warehouses, transportation vehicles, and time sheets. Modern supply chain management is a highly complex, multidimensional problem set with virtually endless number of variables for optimization. An Internet enabled supply chain may have just-in-time delivery, precise inventory visibility, and up-to-the-minute distribution-tracking capabilities. Technology advances have enabled supply chains to become strategic weapons that can help avoid disasters, lower costs, and make money. From internal enterprise processes to external business transactions with suppliers, transporters, channels and end-users marks the wide range of challenges researchers have to handle. The aim of this book is at revealing and illustrating this diversity in terms of scientific and theoretical fundamentals, prevailing concepts as well as current practical applications

Contract design and supply chain coordination in the electricity industry.

In this article we propose a model of the supply chain in electricity markets with multiple generators and retailers and considering several market structures. We analyze how market design interacts with the different types of contract and market structure to affect the coordination between the different firms and the performance of the supply chain as a whole. We compare the implications on supply chain coordination and on the players’ profitability of two different market structures: a pool based market vs. bilateral contracts, taking into consideration the relationship between futures and spot markets. Furthermore, we analyze the use of contracts for differences and two-part-tariffs as tools for supply chain coordination. We have concluded that there are multiple equilibria in the supply chain contracts and structure and that the two-part tariff is the best contract to reduce double marginalization and increase efficiency in the management of the supply chain

Demand Estimation at Manufacturer-Retailer Duo: A Macro-Micro Approach

This dissertation is divided into two phases. The main objective of this phase is to use Bayesian MCMC technique, to attain (1) estimates, (2) predictions and (3) posterior probability of sales greater than certain amount for sampled regions and any random region selected from the population or sample. These regions are served by a single product manufacturer who is considered to be similar to newsvendor. The optimal estimates, predictions and posterior probabilities are obtained in presence of advertising expenditure set by the manufacturer, past historical sales data that contains both censored and exact observations and finally stochastic regional effects that cannot be quantified but are believed to strongly influence future demand. Knowledge of these optimal values is useful in eliminating stock-out and excess inventory holding situations while increasing the profitability across the entire supply chain. Subsequently, the second phase, examines the impact of Cournot and Stackelberg games in a supply-chain on shelf space allocation and pricing decisions. In particular, we consider two scenarios: (1) two manufacturers competing for shelf space allocation at a single retailer, and (2) two manufacturers competing for shelf space allocation at two competing retailers, whose pricing decisions influence their demand which in turn influences their shelf-space allocation. We obtain the optimal pricing and shelf-space allocation in these two scenarios by optimizing the profit functions for each of the players in the game. Our numerical results indicate that (1) Cournot games to be the most profitable along the whole supply chain whereas Stackelberg games and mixed games turn out to be least profitable, and (2) higher the shelf space elasticity, lower the wholesale price of the product; conversely, lower the retail price of the product, greater the shelf space allocated for that product