Coordinating a multi-retailer decentralized distribution system with random demand based on buyback and compensation contracts
Abstract: The purpose of this
paper is to set up the coordinating mechanism for a decentralized distribution
system consisting of a manufacturer and multiple independent retailers by means
of contracts. It is in the two-stage supply chain system that all retailers
sell an identical product made by the manufacturer and determine their order
quantities which directly affect the expected profit of the supply chain with
random demand.
Design/methodology/approach: First comparison of the optimal order
quantities in the centralized and decentralized system shows that the supply
chain needs coordination. Then the coordination model is given based on buyback
cost and compensation benefit. Finally the coordination mechanism is set up in
which the manufacturer as the leader uses a buyback policy to incentive these
retailers and the retailers pay profit returns to compensate the manufacturer.
Findings: The results of a numerical example show that the perfect supply
chain coordination and the flexible allocation of the profit can be achieved in
the multi-retailer supply chain by the buyback and compensation contracts.
Research limitations: The results based on assumptions might not
completely hold in practice and the paper only focuses on studying a single
product in two-stage supply chain.
Practical implications: The coordination mechanism is applicable to a
realistic supply chain under a private information setting and the research
results is the foundation of further developing the coordination mechanism for
a realistic multi-stage supply chain system with more products.
Originality/value: This paper focused on studying the coordination
mechanism for a decentralized multi-retailer supply chain by the joint
application of the buyback and compensation contracts. Furthermore the perfect
supply chain coordination and the flexible allocation of the profit are
achieved.
Author: Jinyu Ren, Hualong
Xie, Yonxiang Liu, Pengfei Zeng, Ze Tao
Journal Code: jptindustrigg150028
