Pricing policies under direct vs. indirect channel competition and national vs. store brand competition

This paper analyzes channel pricing in multiple distribution channels under competition between a national brand (NB) and a store brand (SB), where an NB can be distributed both through a direct channel (e-channel) and an indirect channel (local stores) but an SB can be distributed only through an indirect channel. We first explore cross-brand and cross-channel pricing policies. Formulating the problem as a Nash pricing game, we reach two findings: (1) brand loyalty building is profitable for both an NB and an SB; and (2) marketing decisions are more restrictive for an NB channel than they are for the SB channel. We next assess supply chain coordination and reach two findings: (1) wholesale price change does not coordinate the supply chain and (2) an appropriate combination of markup and markdown prices can achieve both supply chain coordination and a win–win outcome for each channel.     

Manufacturer’s revenue-sharing contract and retail competition

This paper investigates a revenue-sharing contract for coordinating a supply chain comprising one manufacturer and two competing retailers. The manufacturer, as a Stackelberg leader, offers a revenue-sharing contract to two competing retailers who face stochastic demand before the selling season. Under the offered contract terms, the competing retailers are to determine the quantities to be ordered from the manufacturer, prior to the season, and the retail price at which to sell the items during the season. The process of pricing and ordering is expected to result in an equilibrium as in the Bayesian Nash game. On the basis of anticipated responses and actions of the retailers, the manufacturer designs the revenue-sharing contract. Adopting the classic newsvendor problem model framework and using numerical methods, the study finds that the provision of revenue-sharing in the contract can obtain better performance than a price-only contract. However, the benefits earned under the revenue-sharing contract by different supply chain partners differ because of the impact of demand variability and price-sensitivity factors. The paper also analyses the impact of demand variability on decisions about optimal retail price, order quantity and profit sharing between the manufacturer and the retailers. Lastly, it investigates how the competition (between retailers) factor influences the decision-making of supply chain members in response to uncertain demand and profit variability.     

Development of a three-echelon SC model to optimize coordination costs

The purpose of this study is to suggest a conceptual framework for aligning the strategic issues and the structural issues of supply chain management, and also to disclose the effect of E-business application on such an alignment. The number of suppliers, number of tiers, the level of SC integration, order penetration point, lead time, and safety stock are defined as supply chain structural issues, and the characteristics of traded products and buyer–supplier relationship are set as key strategic issues for efficient construction of supply chain structure. E-business application is designed as a moderate variable for the alignment between the strategic issues and the structural issues of supply chain management. Such effort suggests a conceptual framework required for developing an advisable set of E-business application strategies for the efficiency improvement of overall supply chain management. The empirical research model proposed in this work may be used to establish an E-supply chain progression paradigm and a new dimensional manufacturing strategy framework in the E-business era.     

Preferences for contractual forms in supply chains

The supply chain contracting literature has focused on incentive contracts designed to align supply chain members’ individual interests. A key finding of this literature is that members’ preferences for contractual forms are often at odds: the upstream supplier prefers relatively complex contracts that can coordinate the supply chain; however, the downstream retailer prefers a wholesale price-only contract because it leaves more surplus (than does a coordinating contract), which the retailer can capture. This paper addresses the following question: Under what circumstances do suppliers and retailers prefer the same contractual form? We study supply chain members’ preferences for contractual forms under three different competitive settings in which multiple supply chains compete to sell substitutable products in the same market. Our analysis suggests that both upstream and downstream sides of the supply chain may prefer the same “quantity discount” contract, which would eliminate the conflicts of interest that otherwise typify contracting situations. More interesting still is that both sides may also prefer the wholesale price-only contract; this finding provides a theoretical explanation for why that inefficient (but simple) contract is widely adopted in supply chain transactions.     

零售商主导型供应链渠道管理与悖论机制分析

普遍认为零售企业压榨供应商、但实际上供应商利润率远高于零售商是业界关注的一个热点商业悖论问题。通过构建无退货、一般退货、全额退货、线性回扣等体现零售商不同强势地位的供应链渠道管理模型,研究并比较了退货和回扣等强势契约机制以及销售努力对零售供应链管理绩效的影响。分析表明供应商通过批发价定价可以有效转移强势契约带来的风险和成本支付,零售商不能通过强势契约显著提升零售供应链效益。零售商应该利用渠道优势首先强化对批发价定价权的影响,在此基础上合理采用强势契约机制。本文研究很好地解释了零供双方渠道地位与利润水平矛盾的商业悖论问题。     

Retail price markup commitment in decentralized supply chains

We investigate the operational decisions and resulting profits for a supply chain facing price-dependent demand under a policy where there is an ex-ante commitment made on the retail price markup. We obtain closed-form solutions for this policy under the assumption of a multiplicative demand function and we analytically compare its performance with that of a traditional price-only policy. We compare these results to results obtained when demand follows a linear additive form. These formulations are shown to be qualitatively different as the manufacturer’s wholesale pricing decision is independent of the retail price markup commitment in the multiplicative case, but not when demand is linear additive. We demonstrate that the ex-ante commitment can lead to Pareto-improving solutions under linear additive demand, but not under the multiplicative demand function. We also consider the effect of pricing power in the supply chain by varying who determines the retail price markup.     

Using MSRP to enhance the ability of rebates to control distribution channels

Manufacturers have increasingly instituted widespread mail-in rebate programs in recent years. Two primary purposes for rebates are to: (1) more directly impact consumer demand by reducing net retail price, and (2) capitalize on consumers’ slippage behavior because not all consumers who intend to redeem the rebate at purchase time end up actually redeeming it. However, retailers can counteract the power of rebates to impact demand by simply raising the retail price by the amount of the manufacturer’s rebate. We show that by combining a manufacturer’s suggested retail price (MSRP) along with a rebate, the manufacturer can better control the channel by inhibiting the retailer’s ability to raise price, particularly when consumers exhibit loss aversion. As a result, incorporating MSRP with a rebate promotion plan increases the manufacturer’s profit. More surprisingly, the profit of the supply chain as a whole also increases, and the channel efficiency increases as well. In fact, contrary to results from the existing rebate literature suggesting that rebates should always be offered whenever slippage exists, we demonstrate that MSRP can actually be a more effective tool than rebates in managing retailer and consumer behavior when consumers do not have sufficient loss aversion and the slippage rate is low enough.     

Risk pooling strategy in a multi-echelon supply chain with price-sensitive demand

This paper studies a nonstationary inventory and pricing problem. We consider a two-echelon supply chain with one supplier and two retailers, in which the supplier carries all inventory to supply the retailers. Both the reserved and pooled inventory systems are analyzed. Results with normally distributed demands are compared. Assuming the random demand at each retailer is price-sensitive, we further consider the cases when the retailers have and do not have service level requirements. We start with analyzing inventory and pricing strategies for the supplier in a one-period scenario. Then we extend our analysis to both the backlogging and lost-sale scenarios in an infinite planning horizon. The first author’s research is sponsored by Grant No. 70502009 and No. 70432001 of the Chinese National Natural Science Foundation and the second author’s research is sponsored by Grant #W911NF-04-D-0003 of the US Army Research Office and Grant #DMI-0553310 of the US National Science Foundation.     

Trade credit for supply chain coordination

Trade-credit is a seller’s short-term loan to the buyer, allowing the buyer to delay payment of an invoice. It has been the largest source of working capital for a majority of business-to-business firms in the United States. Numerous theories have been proposed to explain trade-credit, mainly from finance perspectives. It has also been an important issue in supply chain management. Surprisingly, most literature in supply chain management has examined the retailer’s stocking policies given a supplier’s trade-credit. This paper attempts to shed light on trade-credit from a supplier’s perspective, and presents it as a tool for supply chain coordination. Specifically, we explicitly assume firms’ financial needs for inventory. Following a Newsvendor framework, we assume that the supplier grants trade-credit and markdown allowance. Given the supplier’s offer, the retailer determines order quantity and the financing option for the inventory, either trade-credit or direct financing from a financial institution. Our result shows that the supplier’s markdown allowance alone cannot fully coordinate the supply chain if the retailer employs direct financing. Positive financing costs call for trade-credit in order to subsidize the retailer’s costs of inventory financing. Using trade-credit in addition to markdown allowance, the supplier fully coordinates the retailer’s decisions for the largest joint profit, and extracts a greater portion of the maximized joint profit.     

制造商主导下的CLSC物流策略和供应链稳定性

针对制造商主导的闭环供应链系统,考虑物流策略对系统的影响,运用博弈论理论,分析了物流外包和物流自营时制造商和零售商的定价策略、物流策略以及供应链稳定性.分析发现,无论是物流自营还是物流外包,随着补贴的增大,批发价格的单位变动率和单位再制造节约成本的单位变动率相等,但是方向相反.关于物流策略,无论补贴高低,只要fg1或者fg~21,则制造商和零售商在物流策略选择上始终一致,供应链具有长期稳定性.但若fg1fg~2,则制造商和零售商在物流选择上产生分歧,供应链具有不稳定性.     

A note on supply chain coordination for joint determination of order quantity and reorder point using a credit option

Credit options and side payments are two methods suggested for achieving coordination in a two-echelon supply chain. We examine the credit option coordination mechanism introduced by Chaharsooghi and Heydari [Chaharsooghi, S., & Heydari, J. (2010). Supply chain coordination for the joint determination of order quantity and reorder point using credit option. European Journal of Operational Research, 204(1), 86–95]. This method assumes that the supplier’s opportunity costs are equal to the reduction in the buyer’s financial holding costs during the credit period. In this note, we show that Chaharsooghi and Heydari’s method is not applicable when buyer and supplier opportunity costs are not equal. We introduce an alternate per order rebate method that reduces supply chain costs to centralized management levels.     

A two-echelon supply chain of a returnable product with fuzzy demand

This study investigates the effects of the manufacturer’s refund on retailer’s unsold products for the two-echelon decentralized and centralized supply chains of a short life and returnable product with trapezoidal fuzzy demand, in which retailer returns the unsold and the customer’s unsatisfactory products to the manufacturer. For each returnable chain, we obtain the closed-form solution of order quantity to maximize the total expected profit of the supply chain, and confirm that demand fuzziness does indeed affect the order quantity and the members’ expected profits. We provide a number of managerial insights by comparing both chains and show that each chain is more advantageous to the members depending on certain condition. Our models are appropriate for a supply chain with a returnable product that lacks information about the demand.     

随机需求下考虑零售商竞争的闭环供应链定价与协调

在随机需求环境下考虑两零售商间存在竞争的闭环供应链定价与协调问题, 其中两个零售商各自面临不同的随机市场需求,并且各自的回收量都受到对方回收价格的影响。在集中决策和分散决策两种情形下分析了制造商和两零售商的定价决策问题,并运用收入费用共享契约实现了闭环供应链的协调。     

Pricing and effort investment for a newsvendor-type product

We investigate a dominant retailer’s optimal joint strategy of pricing and timing of effort investment and analyze how it influences the decision of the manufacturer, the total supply chain profit, and the consumers’ payoff. We consider two pricing schemes of the retailer, namely, dollar markup and percentage markup, and two effort-investment sequences, namely, ex-ante and ex-post. A combination of four cases is analyzed. Our results show that: (1) under the same effort-decision sequence, a percentage-markup pricing scheme leads to higher expected profit for the retailer and the whole supply chain, but a lower expected profit for the manufacturer and a higher retail price for the consumers; (2) under the same markup-pricing strategy, the dominant retailer always prefers to postpone her effort decision until the manufacturer makes a commitment to wholesale price, since it can result in a Pareto-improvement for all the supply chain members. That is, the retailer’s and manufacturer’s expected profits are higher and the consumers pay a lower retail price; and (3) among the four joint strategies, the dominant retailer always prefers the joint strategy of percentage-markup plus ex-post effort decision. However, the dominated manufacturer always prefers the joint strategy of dollar-markup plus ex-post effort decision, which is also beneficial to the end consumers.     

Sales effort free riding and coordination with price match and channel rebate

This paper studies sales effort coordination for a supply chain with one manufacturer and two retail channels, where an online retailer offers a lower price and free-rides a brick-and-mortar retailer’s sales effort. The free riding effect reduces brick-and-mortar retailer’s desired effort level, and thus hurts the manufacturer’s profit and the overall supply chain performance. To achieve sales effort coordination, we designed a contract with price match and selective compensation rebate. We also examined other contracts, including the target rebate contract and the wholesale price discount contract, both with price match. The numerical analysis shows that the selective rebate outperforms other contracts in coordinating the brick-and-mortar retailer’s sales effort and improving supply chain efficiency.     

Cost-based pricing model with value-added tax and corporate income tax for a supply chain network

This article aims to propose the short-term cost-based pricing method of supply chain network with the consideration of value-added tax (VAT) and corporate income tax. First, the average cost function of each business unit in supply chain network is given, and the average cost function is taken as the monotone mapping in n-dimensional space. According to Kantorovich theorem, the existence and uniqueness of equilibrium point where the cost equals the income is discussed. When the demand function satisfies certain conditions, there generally exist many equilibrium points for cost-based pricing. Moreover, the iteration method for finding one of the equilibrium solutions is given. Then, tax burden of producers and consumers is described and illustrated with an example.     

Coordination in a two-stage capacitated supply chain with multiple suppliers

The aim of this paper is to coordinate the inventory policies in a decentralized supply chain with stochastic demand by means of contracts. The system considered is a decentralized two-stage supply chain consisting of multiple independent suppliers and a manufacturer with limited production capacities. The suppliers operate on a make-to-stock basis and apply base stock policy to manage their inventories. On the other hand, the manufacturer employs a make-to-order strategy. Under the necessary assumptions, each supplier is modeled as an M/M/1 make-to-stock queue; and the manufacturer is modeled as a GI/M/1 queue after deriving an approximate distribution for the interarrival times of the manufacturer. Once the supply chain is modeled as a queuing system, centralized and decentralized models are developed. Comparison of the optimal solutions to these models reveals that the supply chain needs coordination. Three different transfer payment contracts are examined in this paper. These are the backorder and holding cost subsidy contracts, the transfer payment contract based on Pareto improvement, and the cost sharing contract. Each contract is evaluated according to its coordination ability and whether it is Pareto improving or not. The results indicate that all three contracts can coordinate the supply chain. However, when the Pareto improvement is taken into account, the cost sharing contract seems to be the one that will be preferred by all parties.     

Stability and monotonicity in newsvendor situations

This study considers a supply chain that consists of n retailers, each of them facing a newsvendor problem, and a supplier. Groups of retailers might increase their expected joint profit by joint ordering and inventory centralization. However, we assume that the retailers impose some level of stock that should be dedicated to them. In this situation, we show that the associated cooperative game has a non-empty core. Afterwards, we concentrate on a dynamic situation, where several model cost parameters and the retailers’ dedicated stock levels can change. We investigate how the profit division might be affected by these changes. We focus on four monotonicity properties. We identify several classes of games with retailers, where some of the monotonicity properties hold. Moreover, we show that pairs of cooperative games associated with newsvendor situations do not necessarily satisfy these properties in general, when changes in dedicated stock levels are in concern.     

Managing the order pipeline to reduce supply chain volatility

The bullwhip effect in particular, and supply chain volatility in general, has been the subject of much analytical and empirical investigation by researchers. One goal of this work has been to determine supply chain designs and policies that minimize volatility. Using a system dynamics approach, we use three distinct supply chain volatility metrics to compare the ability of two alternative pipeline inventory management policies to respond to a demand shock. The results indicate that no one policy dominates on all three metrics of supply chain volatility. A simplistic static pipeline policy minimizes the bullwhip effect and lessens the likelihood of on-hand inventory oscillations, while a more sophisticated dynamic pipeline policy may converge more rapidly to the new equilibrium. In addition, simulation results suggest that the dynamic policy provides better customer service through fewer stockouts and backorders.     

不同博弈框架下多竞争零售商的双渠道供应链定价决策研究

在Bertrand竞争、Stackelberg竞争及集中决策下,研究由单制造商与多竞争零售商组成的双渠道供应链的定价决策问题。运用两阶段优化技术、博弈论及矩阵论,讨论了多竞争零售商与单制造商在价格方面相互竞争的问题,给出不同市场竞争模式及集中决策下供应链成员的博弈均衡解。对比不同博弈框架及集中决策下供应链成员的定价决策,通过数值实验分析了价格敏感度及零售商个数对最优定价决策和最大利润影响,给出一些管理学理论与见解,为双渠道供应链中各成员的管理者制定最优决策提供理论支持。