Supply Chain Coordination for Newsvendor-Type Products with Two Ordering Opportunities

This chapter discusses supply chain coordination issues for a newsvendor-type product with two ordering opportunities. We consider a two-echelon supply chain consisting of one manufacturer and one buyer, where the manufacturer sells his product through the buyer who faces a random demand. The manufacturer does not hold inventory but activates production with a fixed production setup cost to respond to the buyer’s order. At the start of the selling period, the buyer’s first order is delivered. By the end of the sales period, an urgent second order is allowed to meet the willingly-backordered demand if the buyer shares the manufacturer’s setup cost incurred by the second order. We discuss two parties’ optimal order policies in the decentralized setting, and examine the impact of pool schemes of the second setup cost on the decentralized system performance. We show that the decentralized system would perform best if the manufacturer covers utterly the second production setup cost. Also, we prove that under the twice-order framework in the chapter the expected profit of the centralized system is not equal to but greater than the sum of two members’ expected profits in the decentralized system, which is not consistent with our expectation. In order to maximize the expected profit of the channel, two coordinated policies are proposed to achieve perfect coordination: a two-part-tariff policy for the special case that the buyer pays all the manufacturing setup cost, and a revised revenue-sharing contract for the case that two parties share the manufacturing setup cost.