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Supply-chain coordination under an inventory-level-dependent demand rate

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  • Zhou, Yong-Wu
  • Min, Jie
  • Goyal, Suresh K.

Abstract

In this paper, we consider coordination issues of a distribution system composed of a manufacturer and a retailer. The manufacturer offers a single product to the retailer and the demand for the product at the retailer's end is stock dependent. We focus on three aspects of the resulting supply chain. First, we discuss the manufacturer-Stackelberg game structure to determine how the manufacturer sets the wholesale price of the product and how the retailer in turn determines the order quantity. We assume that both the parties share relevant cost information. Then we develop a simple profit-sharing mechanism that would ultimately achieve perfect channel coordination. Finally, the manufacturer is provided with a quantity discount scheme to induce the retailer to increase the order quantity so as to maximize the manufacturer's profit. We show that this discount scheme also achieves the perfect coordination of the whole channel. Numerical examples are used to illustrate the models.

Suggested Citation

  • Zhou, Yong-Wu & Min, Jie & Goyal, Suresh K., 2008. "Supply-chain coordination under an inventory-level-dependent demand rate," International Journal of Production Economics, Elsevier, vol. 113(2), pages 518-527, June.
    • Handle: RePEc:eee:proeco:v:113:y:2008:i:2:p:518-527
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    2. Chang, Chun-Tao & Teng, Jinn-Tsair & Goyal, Suresh Kumar, 2010. "Optimal replenishment policies for non-instantaneous deteriorating items with stock-dependent demand," International Journal of Production Economics, Elsevier, vol. 123(1), pages 62-68, January.
    3. Li, Xin & Lian, Zhaotong & Choong, Kwee Keong & Liu, Xiaoming, 2016. "A quantity-flexibility contract with coordination," International Journal of Production Economics, Elsevier, vol. 179(C), pages 273-284.
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    6. Chen, Kebing, 2012. "Procurement strategies and coordination mechanism of the supply chain with one manufacturer and multiple suppliers," International Journal of Production Economics, Elsevier, vol. 138(1), pages 125-135.
    7. Yue Zhai & Ray Y. Zhong & Zhi Li & George Huang, 2017. "Production lead-time hedging and coordination in prefabricated construction supply chain management," International Journal of Production Research, Taylor & Francis Journals, vol. 55(14), pages 3984-4002, July.
    8. Zhou, Yong-Wu & Cao, Zong-Hong & Zhong, Yuanguang, 2015. "Pricing and alliance selection for a dominant retailer with an upstream entry," European Journal of Operational Research, Elsevier, vol. 243(1), pages 211-223.
    9. Saha, S. & Goyal, S.K., 2015. "Supply chain coordination contracts with inventory level and retail price dependent demand," International Journal of Production Economics, Elsevier, vol. 161(C), pages 140-152.
    10. Zhou, Yong-Wu, 2009. "Two-echelon supply chain coordination through the unified number of annual orders," International Journal of Production Economics, Elsevier, vol. 117(1), pages 162-173, January.
    11. Zhai, Yue & Zhong, Ray Y. & Huang, George Q., 2018. "Buffer space hedging and coordination in prefabricated construction supply chain management," International Journal of Production Economics, Elsevier, vol. 200(C), pages 192-206.
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    13. Tiwari, Sunil & Jaggi, Chandra K. & Gupta, Mamta & Cárdenas-Barrón, Leopoldo Eduardo, 2018. "Optimal pricing and lot-sizing policy for supply chain system with deteriorating items under limited storage capacity," International Journal of Production Economics, Elsevier, vol. 200(C), pages 278-290.
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