Prague Economic Papers 2014, 23(2):198-216 | DOI: 10.18267/j.pep.480

Analysis of Production - Inventory Decisions in a Decentralized Supply Chain

Saeed Alaei1, Masoud Behravesh2, Nayere Karegar2
1 Department of Industrial Engineering, K. N. Toosi University of Technology, Tehran, Iran.
2 Young Researchers and Elite Club, Marand Branch, Islamic Azad University, Marand, Iran (behrawesh@yahoo.com).

Many contracts, such as buy-back policy, cost- and revenue- sharing policies, are widely applied in the literature for supply chain coordination problem. However, the additional gain from coordination may not necessarily cover the extra administrative costs incurred by applying these contracts. In this paper, a production inventory problem is considered in a two-level supply chain. The problem is formulated as a Stackelberg game. Then, the retail fixed mark-up (RFM) policy is examined in order to investigate its performance on supply chain. We apply this policy because of its lower administrative costs compared to other policies. We found that RFM policy is not capable of coordinating the channel; however, it leads to considerable improvements over the channel. For example, it is shown that it improves each member's profit and leads to Pareto improvement over Stackelberg policy. Besides, its average efficiency is about 96% of that of integrated policy approach.

Keywords: decentralized decision making, retail fixed mark-up (RFM), pricing decisions, supply chain coordination
JEL classification: C44, P11, R32

Published: January 1, 2014  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Alaei, S., Behravesh, M., & Karegar, N. (2014). Analysis of Production - Inventory Decisions in a Decentralized Supply Chain. Prague Economic Papers, 23(2), 198-216. doi: 10.18267/j.pep.480
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Arcelus, F. J., Srinivasan, G. (1987), "Inventory Policies under Various Optimizing Criteria and Variable Markup Rates." Management Science, Vol. 33, No. 6, pp.756-762. Go to original source...
    2. Cachon, G. P., Lariviere, M. A. (2005), "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations." Management Science, Vol. 51, No. 1, pp. 30-44. Go to original source...
    3. Cachon, G. P., Zipkin, P. H. (1999), "Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain." Management Science, Vol. 45, No. 7, pp. 936-953. Go to original source...
    4. Chu, H., Wang, J., Jin, Y., Suo, H. (2006), "Decentralized Inventory Control in a Two-Component Assembly System." International Journal Production Economics, Vol. 102, No. 2, pp. 255-264. Go to original source...
    5. Eliashberg, J., Steinberg, R. (1987), "Marketing-Production Decisions in an Industrial Channel of Distribution." Management Science, Vol. 33, No. 8, pp. 981-1000. Go to original source...
    6. Ertek, G., Griffin, P. M. (2002), "Supplier- and Buyer-driven Channels in a Two-stage Supply Chain." IIE Transactions, Vol. 34, No. 8, pp. 691-700. Go to original source...
    7. Ha, A. Y. (2001), "Supplier-Buyer Contracting: Asymmetric Cost Information and Cutoff Level Policy for Buyer Participation." Naval Research Logistics, Vol. 48, No. 1, pp. 41-64. Go to original source...
    8. He, X., Prasad, A., Sethi, S. (2009), "Cooperative Advertising and Pricing in a Dynamic Stochastic Supply Chain: Feedback Stackelberg strategies." Production and Operations Management, Vol. 18, No. 1, pp. 78-94. Go to original source...
    9. Huang, Y., Huang, G. Q., Newman, S. T. (2011), "Coordinating Pricing and Inventory Decisions in a Multi-Level Supply Chain: A Game Theoretic Approach." Transportation Research Part E: Logistics and Transportation Review, Vol. 47, No. 2, pp. 115-129. Go to original source...
    10. Kadiyali, V., Naufel, V., Pradeep, C. (1998), "Product Line Extension and Competitive Market Interactions: An Empirical Analysis." Journal of Econometrics, Vol. 89, No. 1-2, pp. 339-363. Go to original source...
    11. Karray, S., Martin-Herran, G. (2009), "A Dynamic Model for Advertising and Pricing Competition between National and Store Brands." European Journal of Operational Research, Vol. 193, No. 2, pp. 451-467. Go to original source...
    12. Kunter, M. (2012), "Coordination via Cost and Revenue Sharing in Manufacturer-retailer Channels." European Journal of Operational Research, Vol. 216, No. 2, pp. 477-486. Go to original source...
    13. Lau, A. H. L., Lau, H. S. (2004), "Some Two-echelon Supply-chain Games: Improving from Deterministic-Symmetric-Information to Stochastic-Asymmetric Information Models." European Journal of Operational Research, Vol. 161, No. 1, pp. 203-223. Go to original source...
    14. Lau, A. H. L., Lau, H. S. (2005), "A Critical Comparison of the Various Plausible Inter-Echelon Gaming Processes in Supply Chain Models." Journal of the Operational Research Society, Vol. 56, No. 11, pp. 1273-1286. Go to original source...
    15. Li, Q., Atkins, D. (2002), "Coordinating Replenishment and Pricing in a Firm." Manufacturing & Service Operations Management, Vol. 4, No. 4, pp. 241-257. Go to original source...
    16. Li, S. X., Huang, Z. M., Ashley, A. (1995), "Seller-Buyer System Co-operation in a Monopolistic Market." Journal of The Operational Research Society, Vol. 46, No. 12, pp. 1456-1470. Go to original source...
    17. Liou, Y. C., Schaible, S., Yao, J. C. (2006), "Supply Chain Inventory Management via a Stackelberg Equilibrium." Journal of Industrial and Management Optimization, Vol. 2, No. 1, pp. 81-94. Go to original source...
    18. Liu, Y., Fry, M. J., Raturi, A. S. (2006), "Vertically Restrictive Pricing in Supply Chains with PriceDependent Demand." Naval Research Logistics, Vol. 53, No. 6, pp. 485-501. Go to original source...
    19. Parlar, M., Wang, Q. (1994), "Discounting Decisions in a Supplier-Buyer Relationship with a Linear Buyer's Demand." IIE Transactions, Vol. 26, No. 2, pp. 34-41. Go to original source...
    20. Pezeshki, Y., Baboli, A., Akbari, Jokar, M. R. (2012), "Simultaneous Coordination of Capacity Building and Price Decisions in a Decentralized Supply Chain." The International Journal of Advanced Manufacturing Technology, Vol. 64, No. 5-8, pp. 961-976. Go to original source...
    21. Qin, Y., Tang, H., Guo, C. (2007), "Channel Coordination and Volume Discounts with Price-Sensitive Demand." International Journal of Production Economics, Vol. 105, No. 1, pp. 43-53. Go to original source...
    22. Sarlak, R., Nookabadi, A. (2012), "Synchronization in Multi-Echelon Supply Chain Applying Timing Discount." The International Journal of Advanced Manufacturing Technology, Vol. 59, No. 1-4, pp. 289-297. Go to original source...
    23. Seyed Esfahani, M. M., Biazaran, M., Gharakhani, M. (2011), "A Game Theoretic Approach to Coordinate Pricing and Vertical Co-op Advertising in Manufacturer-Retailer Supply Chains." European Journal of Operational Research, Vol. 211, No. 2, pp. 263-273. Go to original source...
    24. Szmerekovsky, J., Zhang, J. (2009), "Pricing and Two-Tier Advertising with One Manufacturer and One Retailer." European Journal of Operational Research, Vol. 192, No. 3, pp. 904-917. Go to original source...
    25. Viswanathan, S., Piplani, R. (2001), "Coordinating Supply Chain Inventories through Common Replenishment Epochs." European Journal of Operational Research, Vol. 129, No. 2, pp. 277-286. Go to original source...
    26. Xie, J., Neyret, A. (2009), "Co-Op Advertising and Pricing Models in Manufacturer-Retailer Supply Chains." Computers & Industrial Engineering, Vol. 56, No. 4, pp. 1375-1385. Go to original source...
    27. Xie, J., Wei, J. C. (2009), "Coordinating Advertising and Pricing in a Manufacturer-Retailer Channel." European Journal of Operational Research, Vol. 197, No. 2, pp. 785-791. Go to original source...
    28. Yang S. L., Zhou Y. W. (2006), "Two-Echelon Supply Chain Models: Considering Duopolistic Retailers' Different Competitive Behaviors." International Journal Production Economics, Vol. 103, No. 1, pp. 104-116. Go to original source...
    29. Yue, J., Austin, J., Wang, M. C., Huang, Z. (2006), "Coordination of Cooperative Advertising in a Two-Level Supply Chain when Manufacturer Offers Discount." European Journal of Operational Research, Vol. 168, No. 1, pp. 65-85. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content