Coordination mechanism for the supply chain with leadtime consideration and price-dependent demand |
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Authors: | Haoya Chen Youhua Chen Chun-Hung Chiu Tsan-Ming Choi Suresh Sethi |
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Institution: | 1. The IBM Research Center, Beijing, China;2. Dept. of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong;3. Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;4. School of Management, M/S SM30, The University of Texas at Dallas, P.O. Box 830688, Richardson, TX 75083-0688, USA |
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Abstract: | We study a coordination contract for a supplier–retailer channel producing and selling a fashionable product exhibiting a stochastic price-dependent demand. The product’s selling season is short, and the supply chain faces great demand uncertainty. We consider a scenario where the supplier reserves production capacity for the retailer in advance, and permits the retailer to place an order not exceeding the reserved capacity after a demand information update during a leadtime. We formulate a two-stage optimization problem in which the supplier decides the amount of capacity reservation in the first stage, and the retailer determines the order quantity and the retail price after observing the demand information in the second stage. We propose a three-parameter risk and profit sharing contract that coordinates the supply chain. The proposed contract permits any agreed-upon division of the supply-chain profit between the channel members. |
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Keywords: | Supply chain coordination Leadtime Information updating Return policy Newsvendor problem Risk and profit sharing Price-dependent demand |
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