×

zbMATH — the first resource for mathematics

Mean-variance analysis of a single supplier and retailer supply chain under a returns policy. (English) Zbl 1278.90015
Summary: In the literature, most of the supply chain coordinating policies target at improving the supply chain’s efficiency in terms of expected cost reduction or expected profit improvement. However, optimizing the expected performance alone cannot guarantee that the realized performance measure will fall within a small neighborhood of its expected value when the corresponding variance is high. Moreover, it ignores the risk aversion of supply chain members which may affect the achievability of channel coordination. As a result, we carry out in this paper a mean-variance (MV) analysis of supply chains under a returns policy. We first propose an MV formulation for a single supplier single retailer supply chain with a newsvendor type of product. The objective of each supply chain decision maker is to maximize the expected profit such that the standard deviation of profit is under the decision maker’s control. We study both the cases with centralized and decentralized supply chains. We illustrate how a returns policy can be applied for managing the supply chains to address the issues such as channel coordination and risk control. Extensive numerical studies are conducted and managerial findings are proposed.

MSC:
90B05 Inventory, storage, reservoirs
90B06 Transportation, logistics and supply chain management
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] Agrawal, V.; Seshadri, S., Risk intermediation in supply chains, IIE transactions, 32, 819-831, (2000)
[2] Bassok, Y., Nagarajan, M., 2004. Contracting under risk preferences. Working paper, University of Southern California.
[3] Buzacott, J., Yan, H., Zhang, H., 2003. Risk analysis of commitment-option contracts with forecast updates. Working paper, York University.
[4] Cachon, G.P., 2001. Supply chain coordination with contracts. Working paper, University of Pennsylvania.
[5] Chen, F., Federgruen, A., 2000. Mean – variance analysis of basic inventory models. Working paper, Columbia University.
[6] Choi, T.M., Li, D., Yan, H., 2001. Newsvendor problems with mean – variance objectives. In: The Proceedings of the 5th International Conference on Optimization: Techniques and Applications, pp. 1860-1870.
[7] Chopra, S.; Mindl, P., Supply chain management: strategy, planning and operations, (2001), Prentice Hall
[8] Donohue, K.L., Efficient supply contract for fashion goods with forecast updating and two production modes, Management science, 46, 1397-1411, (2000) · Zbl 1232.90177
[9] Eeckhoudt, L.; Gollier, C.; Schlesinger, H., The risk averse (prudent) newsboy, Management science, 41, 786-794, (1995) · Zbl 0843.90036
[10] Emmons, H.; Gilbert, S.M., Note. the role of returns policies in pricing and inventory decisions for catalogue goods, Management science, 44, 276-283, (1998) · Zbl 0989.90043
[11] Gan, X.; Sethi, S.; Yan, H., Channel coordination with a risk neutral supplier and a downside risk-averse retailer, Production and operations management, 14, 80-89, (2005)
[12] Grootveld, H.; Hallerback, W., Variance vs downside risk: Is there really that much difference?, European journal of operational research, 114, 304-319, (1999) · Zbl 0935.91021
[13] Kandel, E., The right to return, Journal of law and economics, 39, 329-356, (1996)
[14] Kroll, Y.; Levy, H.; Markowitz, H.M., Mean – variance versus direct utility maximization, Journal of finance, 39, 47-61, (1984)
[15] Lariviere, M.A., Supply chain contracting and coordinating with stochastic demand, (), 233-265 · Zbl 1052.90511
[16] Lau, H.S., The newsboy problem under alternative optimization objectives, Journal of the operational research society, 31, 525-535, (1980) · Zbl 0426.90023
[17] Lau, H.S.; Lau, A.H.L., Manufacturer’s pricing strategy and returns policy for a single-period commodity, European journal of operational research, 116, 291-304, (1999) · Zbl 1009.90005
[18] Lau, A.H.L.; Lau, H.S.; Willett, K.D., Demand uncertainty and returns policies for a seasonal product: an alternative model, International journal of production economics, 66, 1-12, (2000)
[19] Lee, H.L.; Padmanabhan, V.; Whang, S., Information distortion in a supply chain: the bullwhip effect, Management science, 43, 546-558, (1997) · Zbl 0888.90047
[20] Levy, H.; Markowitz, H.M., Approximated expected utility by a function of Mean and variance, American economics review, 69, 308-317, (1979)
[21] Luenberger, D.G., Investment science, (1998), Oxford University Press
[22] Markowitz, H.M., Portfolio selection: efficient diversification of investment, (1959), John Wiley & Sons New York
[23] Nawrocki, D.N., A brief history of downside risk measures, Journal of investing, 8, 9-26, (1999)
[24] Pasternack, B.A., Optimal pricing and returns policies for perishable commodities, Marketing science, 4, 166-176, (1985)
[25] Roy, A.D., Safety first and the holding of assets, Econometrica, 20, 431-449, (1952) · Zbl 0047.38805
[26] Smeltzer, L.R.; Siferd, S.P., Proactive supply management: the management of risk, International journal of purchasing & materials management, Winter, 38-45, (1998)
[27] Spengler, J.J., Vertical restraints and antitrust policy, Journal of political economy, 58, 347-352, (1950)
[28] Tan, B., Managing manufacturing risks by using capacity options, Journal of the operational research society, 53, 232-242, (2002) · Zbl 1138.91508
[29] Tsay, A.A.; Nahmias, S.; Agrawal, N., Modelling supply chain contracts: A review, (), 299-336 · Zbl 1052.90513
[30] Van Mieghem, J.A., Capacity management, investment, and hedging: review and recent developments, Manufacturing and service operations management, 5, 269-301, (2003)
[31] Webster, S.; Weng, Z.K., A risk-free perishable item returns policy, Manufacturing and service operations management, 2, 100-106, (2000)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.