Quantifying supply chain ineffectiveness under uncoordinated pricing decisions

We analyze a multiple-stage supply chain model of a seasonal product with pricing decisions. We develop closed-form expressions for the optimal expected profits of different stages. The results enable us to quantify the loss of supply chain profits if uncoordinated pricing decisions are made by supply chain agents.     

Ordering and pricing decisions in a two-echelon supply chain with asymmetric demand information

This article examines coordinated decisions in a decentralized supply chain that consists of one supplier and one retailer, and faces random demand of a single product with a short life cycle. We consider a setting where the retailer has accurate demand information while the supplier does not. Such a problem with asymmetric demand information can be viewed as an extension of the newsboy problem in which both the supplier and the retailer possess the same demand information. Combining the mechanism of sharing demand information and that of quantity discount and return policy enables us to develop three coordinated models in contrast with the basic and uncoordinated model. We are able to show the ordinal relationship among the retailer’s optimal order quantities in these four models under a general form of random demand, and compare the supply chain profits and conduct sensitivity analysis analytically in four models under uniform random demand. We also provide numerical results under normal random demand that bear a resemblance to those under uniform random demand.     

Capacity allocation,ordering, and pricing decisions in a supply chain with demand and supply uncertainties

This paper studies coordinated decisions in a decentralized supply chain that consists of one Original Equipment Manufacturer (OEM), one manufacturer, and one distributor, and possesses uncertainties at both demand and supply sides. These uncertainties emerge, respectively, from random demand the distributor faces and randomness of capacity with which the OEM processes the manufacturer’s outsourced quantity. Sharing supply and demand uncertainty information along the supply chain enables us to develop three models with different coordination efforts—the OEM and manufacturer coordination, the manufacturer and distributor coordination, and the OEM, manufacturer, and distributor coordination—and quantify the coordinated decisions in these three models. Our analysis of these coordination models suggests that coordinating with the OEM improves the manufacturer’s probability of meeting downstream demand and his expected profit, yet coordinating with the manufacturer is not necessarily beneficial to the OEM when downstream coordination is lacking.     

Retailer or e-tailer? Strategic pricing and economic-lot-size decisions in a competitive supply chain with drop-shipping

Drop-shipping is an arrangement whereby an e-tailer, who does not hold inventories, processes orders and requests a manufacturer to ship products directly to the end customers. To explore the economic benefits of adopting drop-shipping distribution strategy in a competitive environment, we investigate the profitability and the efficiency of the drop-shipping channel as compared to the traditional channel. Specifically, we develop Economic Order Quantity (EOQ) games with pricing and lot-sizing decisions to examine the strategic interactions between a manufacturer and its retailer/e-tailer in the traditional/drop-shipping distribution channels. We identify conditions under which the drop-shipping channel profitably outperforms the traditional one. It is found that the economic interests of adopting drop-shipping distribution for the channel members may not always be consistent. There are cases where only the manufacture would favour drop-shipping. In this study, we also reveal that the inefficiency caused by lack of coordination in the traditional channel can be alleviated in the drop-shipping channel where the lot-sizing decision is made by the manufacturer.     

Impact of product pricing and timing of investment decisions on supply chain co-opetition

In supply chain co-opetition, firms simultaneously compete and co-operate in order to maximize their profits. We consider the nature of co-opetition between two firms: The product supplier invests in the technology to improve quality, and the purchasing firm (buyer) invests in selling effort to develop the market for the product before uncertainty in demand is resolved. We consider three different decision making structures and discuss the optimal configuration from each firm’s perspective. In case 1, the supplier invests in product quality and sets the wholesale price for the product. The buyer then exerts selling effort to develop the market and following demand potential realization, sets the resale price. In case 2, the supplier invests in product quality followed by the buyer’s investment in selling effort. Then, after demand potential is observed, the supplier sets the wholesale price and the buyer sets the resale price. Finally, in case 3, both firms simultaneously invest in product quality and selling effort, respectively. Subsequently, observing the demand potential, the supplier sets the wholesale price and the buyer sets the resale price. We compare all configuration options from both the perspective of the supplier and the buyer, and show that the level of investment by the firms depends on the nature of competition between them and the level of uncertainty in demand. Our analysis reveals that although configuration 1 results in the highest profits for the integrated channel, there is no clear dominating preference on system configuration from the perspective of both parties. The incentives of the co-opetition partners and the investment levels are mainly governed by the cost structure and the level of uncertainty in demand. We examine and discuss the relation between system parameters and the incentives in desiging the supply contract structure.     

Product variety, pricing and differentiation in a supply chain

Manufacturers typically sell consumer products through retailers and the presence of intermediaries has interesting ramifications for their product variety and pricing decisions. Retailers may want higher variety to help reduce price competition but the costs of variety are borne by the manufacturer. The increased variety may increase demand and profits for the manufacturer too but this depends on market-specific factors as well as costs. We explore these interactions through a model wherein a manufacturer sells multiple product variants at a wholesale price to two retailers who in turn compete for consumers. Consumers choose between the retailers based on the price and variety offered by each retailer and the search or transportation cost incurred by the consumer, equivalent to the level of retailer differentiation in our model. Several insights emerge from the analysis. The manufacturer offers the same variety to both retailers and this variety increases with market size and consumer sensitivity to variety. We find that some retailer differentiation benefits the retailers (not the manufacturer) but too much differentiation hurts both the retailers and the manufacturer. If the market is fully covered, then the channel is coordinated even with a simple wholesale pricing contract. If the retailers incur costs to sell the product, the manufacturer surprisingly loses out more than the retailers and in fact absorbs some or all of the retailer costs. Finally, asymmetry between retailers has some unexpected consequences. For example, variety is not impacted by asymmetry in consumer preferences for a retailer and the manufacturer offers the same variety to both retailers.     

Strategic wholesale pricing in a supply chain with a potential entrant

This paper develops an adverse selection model for a two-stage supply chain with one supplier, one retailer, and a potential outside entrant supplier who makes a partially substitutable product. The work is different from most research on entry deterrence that only considers a single-stage model. Our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant. We focus on a model where the entrant supplier will sell her product through the same incumbent retailer. We derive the optimal decisions for each player and study the comparative statics of the equilibrium. To investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier, we also consider three alternative models with different channel structures, when both suppliers sell their products directly, when the entrant has another independent retailer, and when the entrant sells her product directly. Through the comparison, we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier.     

Reverse channel decisions for a fuzzy closed-loop supply chain

This article reports the results of a study that explores the decisions of reverse channel choice in a fuzzy closed-loop supply chain. Specifically, a manufacturer produces new products by using original components or by remanufacturing used products and wholesales the new products to the retailer who then sells them to the consumers. The used products are collected by the manufacturer or the retailer or a third party. The primary goal of this paper is to investigate the implications of three different used-product collection modes on the decisions of the manufacturer, the retailer, and the third party, and on their own profits in the expected value model. By using game theory and fuzzy theory, the firms optimal strategies are obtained.     

Integrated markdown pricing and aggregate production planning in a two echelon supply chain: A hybrid fuzzy multiple objective approach

Given high variability of demands for short life cycle products, a retailer has to decide about the products’ prices and order quantities from a manufacturer. In the meantime, the manufacturer has to determine an aggregate production plan involving for example, production, inventory and work force levels in a multi period, multi product environment. Due to imprecise and fuzzy nature of products’ parameters such as unit production and replenishment costs, a hybrid fuzzy multi-objective programming model including both quantative and qualitative constraints and objectives is proposed to determine the optimalprice markdown policy and aggregate production planning in a two echelon supply chain. The model aims to maximize the total profit of manufacturer, the total profit of retailer and improving service aspects of retailing simultaneously. After applying appropriate strategies to defuzzify the original model, the equivalent multi-objective crisp model is then solved by a fuzzy goal programming method. An illustrative example is also provided to show the applicability and usefulness of the proposed model and solution method.     

Coordinated decisions for substitutable products in a common retailer supply chain

This paper studies coordination mechanisms in a supply chain which consists of two suppliers with capacity uncertainties selling differential yet substitutable products through a common retailer who faces price-sensitive random demand of these two products. We develop in a noncompetitive setting three coordination models – revenue sharing, return policy, and combination of revenue sharing and return policy – and contrast them with a basic and uncoordinated model. We are able to establish the ordinal relationship among the retailer’s ordering and pricing decisions and analytically compare the performances between certain models when two suppliers are identical. We find that the retailer’s ordering and pricing decisions in the model with return policy in the case of identical suppliers are independent of demand or supply uncertainty. Our numerical results reveal that the performances of coordination models in the case of nonidentical suppliers resemble those in the case of identical suppliers. We find that the retailer will place a larger order quantity in models where her average cost per unit sold is smaller. We also find that product substitutability and uncertainties have different effects on chain performances.     

Two-period pricing and decision strategies in a two-echelon supply chain under price-dependent demand

This paper presents a two-period supply chain model which is comprised of one manufacturer and one retailer who are involved in trading a single product. The demand rate in each period is dependent on the selling prices of the current period and the previous period. We assume that the manufacturer acts as the Stackelberg leader and declares wholesale price(s) to the retailer who follows the manufacturer’s decision and sets his selling prices for two consecutive periods. The manufacturer adopts one of the two pricing options: (1) setting the same wholesale price to both the selling periods (2) setting different wholesale prices to two different selling periods. Based on these pricing options, we develop four decision strategies of the manufacturer and the retailer and compare them. For a numerical example, we study the effects of these decision strategies on the optimal results of the supply chain. Further, we graphically analyze under what circumstances a particular decision strategy plays a dominant role.     

Optimal pricing strategies under co-existence of price-takers and bargainers in a supply chain

We investigate how the co-existence of two types of customers, price-takers, and bargainers, influences the pricing decisions in a supply chain. We consider a stylized supply chain that includes one manufacturer and one retailer, and we characterize the optimal prices of the retailer and the manufacturer. We further discuss the effects of the fraction of the bargainers in the customer population and the relative bargaining power of the bargainers on these optimal prices. Our results show that, given the wholesale price, the lowest price at which the retailer is willing to sell (ie, cut-off price) increases with the relative bargaining power of the bargainers. Both posted and cut-off prices increase in the fraction of the bargainers in the customer population. Moreover, depending on the type of negotiation cost, the variations of both prices will vary. In equilibrium, both posted and cut-off prices do not monotonically increase with the fraction of the bargainers in the customer population. When the maximum reservation price of the customers is low, and/or the negotiation costs are high, and/or the relationship between the bargainer's negotiation cost and reservation price is high, the retailer may reduce both posted and cut-off prices as the fraction of the bargainers increases.     

Pricing decisions in a dual supply chain of organic and conventional agricultural products

Annals of Operations Research - We analyze a dual-channel supply chain comprising two suppliers that offer vertically-differentiated agricultural products; specifically, one offers an organic...     

Optimizing inventory decisions in a two-level supply chain with order quantity constraints

A fundamental assumption in traditional inventory models is that all of the ordered items are of perfect quality. A two-level supply chain is considered consists of one retailer and a collection of suppliers that operate within a finite planning horizon, including multiple periods, and a model is formulated that simultaneously determines both supplier selection and inventory allocation problems in the supply chain. It is supposed that the ordered products dependent on the suppliers include a certain percentage of imperfect quality products and have different prices. In this paper, we study the impact of the retailer’s financial constraint. On the other hand, suppliers have restricted capacities and set minimum order quantity (MOQ) policy for the retailer’s order amount happened in each period. So, the problem is modeled as a mixed integer nonlinear programming. The purpose of this model is to maximize the total profit. The nutrients, fishery and fruitage industries give good examples for the proposed model. A numerical example is presented to indicate the efficiency of the proposed model. Considering the complexity of the model, a genetic algorithm (GA) is presented to solve the model. We demonstrate analytically that the proposed genetic algorithm is suitable in the feasible situations.     

Possibilistic linear-programming approach for supply chain networking decisions

Supply chain networking decisions are very important for the medium- and long-term planning success of manufacturing companies. The inputs to supply chain planning models are subject to environmental and system uncertainties. In this paper, a fuzzy set theory-based model is proposed to deal with those uncertainties. For this purpose, a possibilistic linear programming (PLP) model is used to make strategic resource-planning decisions using fuzzy demand forecasts and fuzzy yield rates as well as other inputs such as costs and capacities. The objective of the proposed PLP is to maximize the total profit of the enterprise. The model is applied to Mercedes–Benz Türk, one of the largest bus-manufacturing companies in the world, and conclusions and suggestions for further research are provided.     

On the optimization of supply chain networking decisions

Companies strive to position themselves to maximize the value they add to the supply chains in which they are embedded. This raises strategic questions such as: Which durable resources should be developed to enhance current core competencies? Which activities should be externalized and to which potential partner should they be given? Which internal activities should be preserved and developed? How should the resources of the enterprise be allocated to activities? The aim of this paper is to propose a mathematical programming model of the extended enterprise which can be used to investigate this type of strategic networking issues. A number of general network modeling constructs are first proposed. A model to optimize the supply chain structure under specific assumptions on the nature of production, cost and value functions in typical production/distribution companies is then derived. A heuristic to obtain solutions from the model is also presented. Finally, an example based on a refrigerator company is used to illustrate the usefulness of the approach.     

Joint replenishment and pricing decisions in inventory systems with stochastically dependent supply capacity

In this paper, we study a joint optimization problem of replenishment and pricing for a periodic-review inventory system with random supply capacity. When making replenishment and pricing decisions at the beginning of each period, the firm only knows the supplier’s available capacity in the current period, but does not know what will be the available capacity in future periods. The salient feature of our model is that the random supply capacities for different periods are dependent. Several stochastic dependency structures are considered for the supply capacity sequence, including the one-lag and the multi-lag dependency.     

Benefits of partial myopia in a durable product supply chain considering pricing and advertising

Consider a bilateral monopoly supply chain where a manufacturer distributes a durable product through a retailer to end consumers. This paper develops a differential game in which the manufacturer determines the advertising and the wholesale price while the retailer sets the retail price. Channel members are partially myopic when they only consider goodwill dynamics and disregard sales evolution. We derive and compare partially myopic and forward-looking strategies with the following observations: First, under decentralized scenario, partially myopic channel members get higher profits than the forward-looking ones, while the opposite result occurs in centralized scenario. Second, when channel members are partially myopic, the distribution channel can benefit from the strategic decentralization.     

Combined pricing and supply chain operations under price-dependent stochastic demand

In this study, we determined product prices and designed an integrated supply chain operations plan that maximized a manufacturer’s expected profit. The computational results of this study revealed that as the variance of the demand distribution increases, a manufacturer will increase its inventory to levels that are greater than the anticipated demand to prevent the potential loss of sales and will simultaneously raise product prices to obtain a greater profit. In the cost minimization approach, the manufacturer may earn the highest possible profits, as determined by the profit optimization approach, only if this firm precisely forecasts the mean market demand for its products. Greater inaccuracies in this forecast will produce lower levels of expected profit.