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Assortment-based cooperation between two make-to-stock firms

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  • Bariş Tan
  • Yalçin Akçay

Abstract

Cooperation can potentially improve competitiveness and profitability of firms with limited resources and production capacities. This article presents a continuous-time Markov chain model to study an assortment-based cooperation between two independent firms with limited capacity. An assortment-based cooperation is an agreement to combine the product assortments of two firms and offer the combined assortment to each firm's customers. Both centralized and decentralized cooperations are studied. In a centralized cooperation, firms jointly make replenishment decisions, whereas in the decentralized case, firms operate under independent base stock policies and manage product exchanges through a discount-based contract where each firm supplies its own product to the other firm at a discounted price and at an agreed-upon fill rate. Under this scheme, assortment-based cooperation also mandates each firm to effectively ration their inventories since they have to deal with two different demand streams. The discount-based contract yields the results of the centralized operation by using specific values of the contract parameters. It is shown that assortment-based cooperation is always beneficial for two symmetrical firms in both centralized and decentralized cooperation. Numerical experiments reveal that assortment-based cooperation is not always beneficial if the firms are not symmetrical. [Supplementary materials are available for this article. Go to the publisher's online edition of IIE Transactions for Proofs of all Propositions.]

Suggested Citation

  • Bariş Tan & Yalçin Akçay, 2014. "Assortment-based cooperation between two make-to-stock firms," IISE Transactions, Taylor & Francis Journals, vol. 46(3), pages 213-229.
    • Handle: RePEc:taf:uiiexx:v:46:y:2014:i:3:p:213-229
    DOI: 10.1080/0740817X.2013.814929
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    Cited by:

    1. Çömez-Dolgan, Nagihan & Fescioglu-Unver, Nilgun & Cephe, Ecem & Şen, Alper, 2021. "Capacitated strategic assortment planning under explicit demand substitution," European Journal of Operational Research, Elsevier, vol. 294(3), pages 1120-1138.
    2. Oktay Karabağ & Barış Tan, 2018. "Analysis of a group purchasing organization under demand and price uncertainty," Flexible Services and Manufacturing Journal, Springer, vol. 30(4), pages 844-883, December.
    3. Çömez-Dolgan, Nagihan & Moussawi-Haidar, Lama & Jaber, Mohamad Y. & Cephe, Ecem, 2022. "Capacitated assortment planning of a multi-location system under transshipments," International Journal of Production Economics, Elsevier, vol. 251(C).
    4. Çömez-Dolgan, Nagihan & Dağ, Hilal & Fescioglu-Unver, Nilgun & Şen, Alper, 2023. "Multi-plant manufacturing assortment planning in the presence of transshipments," European Journal of Operational Research, Elsevier, vol. 310(3), pages 1033-1050.

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