Competitive strategies and market segmentation for suppliers with substitutable products

This research studies the competition between two coexisting suppliers in a two-echelon supply chain. The suppliers have different inventory cost structures (holding cost and setup cost). Each supplier offers one type of the two substitutable products to multiple buyers. Buyers’ preferences between the substitutable products differ. Each buyer has a particular order profile (order frequency and quantity). A buyer chooses between the suppliers based on the prices offered by both suppliers and his/her own preference. A Hotelling-type model is used to describe buyers’ preferences for the products. We are able to describe the conditions for buyers to switch between the suppliers, and therefore spot the buyer groups that may or may not switch when the suppliers compete. Pricing strategies for different buyer groups are suggested to the competitive suppliers accordingly. Furthermore, equilibrium prices, market segments, and overall profits for the suppliers are revealed based on Game Theory. An algorithm is also proposed to forecast buyers’ reactions to suppliers’ pricing strategies given the buyers’ order profiles and preferences between the substitutable products.     

Optimal promotion planning—depth and frequency—for a two-stage supply chain under Markov switching demand

In considering the retailer–supplier supply chain, this paper analyzes how a retailer reasonably decides both the depth and frequency of the price discount promotion including or excluding a supplier’s inventory decision. Assuming that the promotion frequency used by the retailer is probabilistic, we model a promotion-inventory decision under an AR(1) demand with a Markov switching promotion regime. After obtaining the optimal promotion plan, our analysis also considers the behavior of the optimal promotion decision; the retailer’s price format selection, either an Every-Day-Low-Price policy (EDLP) or a Promotion policy (HiLo); and the impact of information sharing of promotion status on the system’s performance. Our results suggest that a retailer tends to overpromote if inventory cost is excluded in its promotion decision, that increasing the market share is a preferable action for both the retailer and the supplier, that total margin and price-elasticity play an important role in selecting the price format, and that the profitability for a supplier of sharing promotion information depends on the transition probabilities of the Markov switching regime.     

Product availability in competitive and cooperative dual-channel distribution with stock-out based substitution

This paper investigates the impact of customers’ stock-out based substitution on the product availability and the channel efficiency of a dual-channel supply chain, which consists of a supplier distributing a single product to customers through both its wholly owned direct channel and an independent retailer. The supplier and its retailer, with the objective of optimizing their own profit, simultaneously choose their own base-stock level to satisfy the stochastic demand from the customers whose channel preferences are heterogeneous and may be affected by each channel’s product availability. The customers dynamically substitute between the two channels in the event of a stock-out. The result shows that the effect of the stock-out based substitution may increase or decrease the efficiency of a decentralized supply chain. It is found that while the integrated supplier–retailer may consolidate the base-stock levels to benefit from stock-out based substitution, the independent supplier and retailer are more inattentive to customers’ stock-out based substitution. Thus, the competitive base-stock levels of the decentralized dual-channel supply chain rarely agree with the system optimal levels. Various contracts are examined to shed light on channel coordination mechanisms. In addition, it is shown that the channel efficiency of the dual-channel distribution can be improved by the emergence of Stackelberg leadership from either the supplier or the retailer.     

Random yield supply chain with a yield dependent secondary market

This paper considers a simple supply chain with one supplier and one retailer where the supplier’s production is subject to random yield and the retailer faces uncertain demand. There exists a secondary market for acquiring or disposing products by the supplier. We study both the centralized and decentralized systems. In the decentralized system, a no risk sharing contract and a risk sharing minimum commitment contract are analyzed. The supply chain with the risk sharing contract is further analyzed with a constant secondary market price and a yield dependent secondary market price. We present both the supplier’s and the retailer’s optimal strategies and provide insights for managers when making decisions under random yield risk and demand uncertainty. We find that the secondary market generally has a positive impact on supply chain performance and the actual effect of random yield risk on the supply chain performance depends on cost parameters and supply chain contract settings. Under certain conditions, reducing yield randomness may weaken the double marginalization effect and improve the chain performance. From the numerical study, we also show that there exists an optimal commitment level for the supply chain.     

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.     

A dynamic model of supplier switching

While a broad branch of literature deals with the development of buyer–supplier relationships, limited research exists under which circumstances a buyer should terminate such a relationship and switch to a new supplier. Recently, Wagner and Friedl (2007) have developed a framework to analyze a static one-shot supplier switching decision when the buyer has asymmetric information about the supplier’s production costs. We extend their basic framework to a dynamic one, assuming that the supplier learns the production costs over time when he sets up the production process. Since the supplier’s cost information at the individual stages crucially determines the setup and the switching decision, it becomes essential for supply chain management to provide proper incentives so that the supplier reveals his cost information truthfully over time. We characterize the optimal setup and switching strategy as well as the optimal supply chain contract. We also compare our findings with those of the static setting to provide further insights.     

Optimal order lot sizing and pricing with free shipping

Companies, especially those in e-business, are increasingly offering free shipping to buyers whose order sizes exceed the free shipping quantity. In this paper, given that the supplier offers free shipping, we determine the retailer’s optimal order lot size and the optimal retail price. We explicitly incorporate the supplier’s quantity discount, and transportation cost into the model. We analytically and numerically examine the impacts of free shipping, quantity discount and transportation cost on the retailer’s optimal lot sizing and pricing decisions. We find that free shipping can benefit the supplier, the retailer, and the end customers, and can effectively encourage the retailer to order more of the good, to the extent of ordering a few times of the optimal order lot size without free shipping. The order lot size will increase and the retail price will decrease if the supplier offers proper free shipping.     

Coordination mechanism for the supply chain with leadtime consideration and price-dependent demand

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.     

A two-stage supply chain coordination mechanism considering price sensitive demand and quantity discounts

This paper explores the coordination between a supplier and a buyer within a decentralized supply chain, through the use of quantity discounts in a game theoretic model. Within this model, the players face inventory and pricing decisions. We propose both cooperative and non-cooperative approaches considering that the product traded experiences a price sensitive demand. In the first case, we study the dynamics of the game from the supplier's side as the leader in the negotiation obtaining a Stackelberg equilibrium, and then show how the payoff of this player could still improve from this point. In the second case, a cooperative model is formulated, where decisions are taken simultaneously, emulating a centralized firm, showing the benefits of the cooperation between the players. We further formulate a pricing game, where the buyer is allowed to set different prices to the final customer as a reaction to the supplier's discount decisions. For the latter we investigate the difference between feasibility of implementing a retail discount given a current coordination mechanism and without it. Finally the implications of transportation costs are analyzed in the quantity discount schedule. Our findings are illustrated with a numerical example showing the difference in the players’ payoff in each case and the optimal strategies, comparing in each case our results with existing work.     

随机需求下供应链协调优化模型

考虑了由一个供应商和多个零售商构成的两级供应链系统,在随机需求下,通过共同补给期进行协调的问题.作为Stackelberg博弈的领导者,供应商给出共同补给期策略,零售商作为跟随者以最优库存策略响应,建立了确定共同补给期和相应价格折扣模型.通过数值实例对该模型进行分析,得出Stackelberg均衡解,达到Pareto最优.     

Wholesale-price contract of supply chain with information gathering

This paper investigates a wholesale-price contract of supply chain under the endogenous information structure. This supply chain consists of one supplier and one retailer during the selling season. The retailer does not know his selling cost but can spend resources to acquire information. The supplier offers a contract, which induces the retailer to gather information and generate more production orders with beta costs. We find that there exists an upper bound of the information gathering cost such that the supplier induces the retailer to gather information. The increasing cost of information gathering may decrease the order quantity and wholesale price. Moreover, the cost beta has an impact on the expected profits of the two parties. With the increasing cost of information gathering, the supplier’s expected profit is reduced, while that of the retailer becomes ambiguous in terms of the distribution function and the interval of selling cost information. Finally, a numerical example is presented to explain the main results.     

A quantity discount approach to supply chain coordination

Quantity discounts provide a practical foundation for inventory coordination in supply chains. However, typical supply chain participants may encounter difficulties in implementing the coordination policy simply because (1) specified lot size adjustments may deviate from the economic lot sizes and (2) the buying firm may face amplified overstocking risks related to increased order quantities. The main objective of this study is to develop a quantity discount model that resolves the practical challenges associated with implementing quantity discount policies for supply chain coordination between a supplier and a buyer. The proposed Buyer’s Risk Adjustment (B-RA) model allows the supplier to offer discounts that capitalize on the original economic lot sizes and share the buyer’s risk of temporary overstocking under uncertain demand. The analytical results suggest that the proposed B-RA discount approach is a feasible alternative for supply chain coordination under uncertain demand conditions.     

需求预测更新条件下两阶段电子商务供应链契约协调

研究了一类在贝叶斯需求预测更新情形下,生命周期中采用B2C与C2B两阶段进行产品销售的供应链模型,研究发现无法使用单一契约来协调供应链。在此基础上,设计了具有供应商价格折扣契约与零售商承诺订购契约的两阶段供应链契约协调机制,证明了两阶段协调机制能够实现供应链的帕累托改进。算例分析表明了两阶段契约协调机制的有效性,并发现能够实现供应链完美协调的契约参数不一定在帕累托集合内,供应链不一定能够达到完美协调;且由于零售商与供应商的最优契约参数不同,需要通过零售商与供应商之间的谈判达到纳什均衡。     

Coordination mechanism for a deteriorating item in a two-level supply chain system

The subject of the coordination between the suppliers and the buyers in multi-echelon inventory-distribution systems has been studied by many researchers. This paper considers a supply chain including a manufacturer and several buyers and assumes that the inventory items deteriorate over time and its inventory level decreases. In order to determine the order policies, coordination over the supply chain is achieved by scheduling the buyers’ delivery days and their coordination with the manufacturer’s production cycle. A mathematical model is developed and analyzed. To test the efficiency of the proposed model, two other models with the supposition of lot-sizing policies with common order cycle and independent deciding are also developed. In comparison to the other two models, the numerical results show that the synchronizing model of production and delivery cycles works better and has less total cost. In addition, in order to encourage the buyers in cooperation, a model on profit sharing is proposed that equitably shares the total savings with all the parties.     

考虑零售商保鲜和消费者效用的生鲜农产品供应链协调

针对消费者对生鲜农产品新鲜度要求更高但零售商单独保鲜能力有限的问题,从提高消费效用角度出发,构建了受生鲜农产品新鲜度和价格影响的消费者时变效用函数,建立了由零售商和供应商组成的两级生鲜农产品供应链利润模型,采用Stackberg博弈方法分析了分散式决策下供应商的最优保鲜努力和零售商的最优定价,并同集中式决策下供应链系统的最优决策进行比较。由于分散式决策下零售商的保鲜努力较小,因此给出了能够实现生鲜农产品供应链协调的“保鲜成本分担+收益共享”契约。在此基础上,以同时实现供应链协调和提高消费者整体效用为目标,进一步确定了协调契约所在的区间范围。最后通过算例证明了协调契约的有效性。     

The impact of forecasting model selection on the value of information sharing in a supply chain

This paper presents a study on the impact of forecasting model selection on the value of information sharing in a supply chain with one capacitated supplier and multiple retailers. Using a computer simulation model, this study examines demand forecasting and inventory replenishment decisions by the retailers, and production decisions by the supplier under different demand patterns and capacity tightness. Analyses of the simulation output indicate that the selection of the forecasting model significantly influences the performance of the supply chain and the value of information sharing. Furthermore, demand patterns faced by retailers and capacity tightness faced by the supplier also significantly influence the value of information sharing. The result also shows that substantial cost savings can be realized through information sharing and thus help to motivate trading partners to share information in the supply chain. The findings can also help supply chain managers select suitable forecasting models to improve supply chain performance.     

Quality investment and price decision in a risk-averse supply chain

In this paper, we investigate quality investment and price decision of a make-to-order (MTO) supply chain with uncertain demand in international trade. Due to volatility of orders from buyers, the supplier and the manufacturer in the supply chain are subject to financial risk. In contrast to the general assumption that players in a supply chain are risk neutral in quality investment and price decision, we consider the risk-averse behavior of the players in three different supply chain strategies: Vertical Integration (VI), Manufacturer’s Stackelberg (MS) and Supplier’s Stackelberg (SS). The study shows that both supply chain strategy and risk-averse behavior have significant impacts on quality investment and pricing. Compared to a risk-neutral supply chain, a risk-averse supply chain has lower, same and higher quality of products in VI, MS and SS, respectively. Also, we derive the conditions under which the supply chain strategy is implemented in a decentralized setting. A numerical study is used to illustrate some related issues.     

Pricing and advertisement in a manufacturer–retailer supply chain

We use a game theoretical approach to study pricing and advertisement decisions in a manufacturer–retailer supply chain when price discounts are offered by both the manufacturer and retailer. When the manufacturer is the leader of the game, we obtained Stackelberg equilibrium with manufacturer’s local allowance, national brand name investment, manufacturer’s preferred price discount, retailer’s price discount, and local advertising expense. For the special case of two-stage equilibrium when the manufacturer’s price discount is exogenous, we found that the retailer is willing to increase local advertising expense if the manufacturer increases local advertising allowance and provides deeper price discount, or if the manufacturer decreases its brand name investment. When both the manufacturer and retailer have power, Nash equilibrium in a competition game is obtained. The comparison between the Nash equilibrium and Stackelberg equilibrium shows that the manufacturer always prefers Stackelberg equilibrium, but there is no definitive conclusion for the retailer. The bargaining power can be used to determine the profit sharing between the manufacturer and the retailer. Once the profit sharing is determined, we suggest a simple contract to help the manufacturer and retailer obtain their desired profit sharing.     

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.     

Analyzing online B2B exchange markets: Asymmetric cost and incomplete information

This research applies the discriminating auction to analyze the online B2B exchange market in which a single buyer requests multiple items and several suppliers having equal capacity and asymmetric cost submit bids to compete for buyer demand. In the present model, we examine the impact of asymmetric cost and incomplete information on the participants in the market. Given the complete cost information, each supplier randomizes its price and the lower bound of the price range is determined by the highest marginal cost. In addition, the supplier with a lower marginal cost has a larger considered pricing space but ultimately has a smaller equilibrium one than others with higher marginal costs. When each supplier’s marginal cost is private information, the lowest possible price is determined by the number of suppliers and the buyer’s reservation price. Comparing these two market settings, we find whether IT is beneficial to buyers or suppliers depends on the scale of the bid process and the highest marginal cost. When the number of suppliers and the difference between the highest marginal cost and the buyer’s reservation price are sufficiently large, each supplier can gain a higher profit if the marginal costs are private information. On the contrary, when the highest marginal cost approaches the buyer’s reservation price, complete cost information benefits the suppliers.