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Coordinating a supply chain with effort and price dependent stochastic demand. (English) Zbl 1205.90045
Summary: We investigate the issue of channel coordination for a supply chain facing stochastic demand that is sensitive to both sales effort and retail price. In the standard newsvendor setting, the returns policy and the revenue sharing contract have been shown to be able to align incentives of the supply chain’s members so that the decentralized supply chain behaves as well as the integrated one. When the demand is influenced by both retail price and retailer sales effort, none of the above traditional contracts can coordinate the supply chain. To resolve this issue, we explore a variety of other contract types including joint return policy with revenue sharing contract, return policy with sales rebate and penalty (SRP) contract, and revenue sharing contract with SRP. We find that only the properly designed returns policy with SRP contract is able to achieve channel coordination and lead to a Pareto improving win-win situation for supply chain members. We then provide analytical method to determine the contract parameters and finally we use a numerical example to illustrate the findings and gain more insights.

MSC:
90B06 Transportation, logistics and supply chain management
90B50 Management decision making, including multiple objectives
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