Supply Chain Networks and Electronic Commerce: A Theoretical Perspective

In this paper, we develop a framework for the formulation, analysis, and computation of solutions to supply chain network problems in the presence of electronic commerce. Specifically, we consider manufacturers who are involved in the production of a homogeneous product and can now sell and have delivered the product not only to retailers but also directly to consumers. In addition, the manufacturers can transact with the retailers electronically. We assume that both the manufacturers and the retailers seek to maximize their profits, whereas the consumers take both the prices charged by the retailers and the manufacturers, along with the associated transaction costs, in making their consumption decisions. We identify the network structure of the problem, derive the equilibrium conditions, and establish the finite-dimensional variational inequality formulation. We then utilize variational inequality theory to obtain qualitative properties of the equilibrium pattern. In addition, we propose a continuous time adjustment process for the study of the disequilibrium dynamics and establish that the set of stationary points of the resulting projected dynamical system coincides with the set of solutions of the variational inequality problem. Finally, we apply an algorithm for the determination of equilibrium prices and product shipments in several supply chain examples. This paper synthesizes Business-to-Consumer (B2C) and Business-to-Business (B2B) decision-making in a supply chain context within the same framework.