Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 203, Issue 1, Pages 70-80Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2009.07.002
Keywords
Supply chain coordination; Leadtime; Information updating; Return policy; Newsvendor problem; Risk and profit sharing; Price-dependent demand
Funding
- Research Grants Council of Hong Kong [PolyU5143/07E]
- Hong Kong Polytechnic University [J-BB36U]
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We study a coordination contract for a supplier-retailer channel producing and selling a fashionable product exhibiting a stochastic price-dependent demand. The product's selling season is short, and the supply chain faces great demand uncertainty. We consider a scenario where the supplier reserves production capacity for the retailer in advance, and permits the retailer to place an order not exceeding the reserved capacity after a demand information update during a leadtime. We formulate a two-stage optimization problem in which the supplier decides the amount of capacity reservation in the first stage, and the retailer determines the order quantity and the retail price after observing the demand information in the second stage. We propose a three-parameter risk and profit sharing contract that coordinates the supply chain. The proposed contract permits any agreed-upon division of the supply-chain profit between the channel members. (C) 2009 Elsevier B.V. All rights reserved.
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