Baozhuang Niu

Supply chain performance and consumer surplus under alternative structures of channel dominance

Supply chain partnerships exhibit varying degrees of power distribution among the agents. This has implications for pricing and operational decisions in the channel and eventually influences the end customers. To understand how different power schemes affect the supply chain partners’ performance and consumer surplus, we study channel structures with a dominant manufacturer, a dominant retailer, and no single-agent dominance. Under random and price sensitive demand, channel dominance is interpreted in our setting as exerting power to determine the retail and wholesale prices as well as to transfer the inventory risk to the weaker party. We analyze all problems in a game-theory based framework and characterize the equilibrium retail price, wholesale price, and order/production quantity. We show that the manufacturer-dominated channel structure leads to the highest production quantity, the lowest retail price, and the largest expected surplus for an individual buyer; on the other hand, the entire channel profit and the total consumer surplus are highest when the retailer holds the channel dominance. While both the manufacturer and the retailer are better off when they become a power agent individually, channel dominance does not always guarantee higher share of channel profits, as we show under the manufacturer-dominated structure. Further insights are derived analytically and numerically from comparisons of the manufacturer/retailer dominance schemes with the no single-agent dominance structure and integrated channel. We also study extensions to investigate the effect of demand model and risk sharing, and we address industry settings with alternative schemes of holding cost, shortage penalty and salvage value.

Coordination of channel members’ efforts and utilities in contract farming operations

One important driving force behind parties entering into contract farming agreements is to improve farmers’ production efforts (e.g. buying agricultural machinery or using new planting techniques). In this study, we examine two widely used channel structures in contract farming operations, namely firm–farmer (FF) and firm–cooperative–farmer (FCF) structures, to assess how each contract type influences the coordination of efforts and utilities by channel members. First, we study wholesale price and cost-sharing contracts under the FF structure and find that the latter can result in a win–win outcome for both channel members when the firm’s cost-sharing proportion is lower than a threshold level. We also find that cost-sharing contract effectively enlarges the opportunity of a successful FF contract farming agreement. Interestingly, we show that the purchasing price offered by the firm has a unimodal pattern in its cost-sharing proportion. Second, under the FCF structure, we consider two bargaining models based on the cooperative’s commission contracts with the farmer. We find that the farmer’s production effort can achieve the system optimal level, and the cooperative’s high bargaining power helps ensure a steady FCF contract farming agreement. We also find that there exists a win–win–win outcome for all three channel members when the cooperative’s commission ratio is higher than a threshold level.

Impact of channel power and fairness concern on supplier’s market entry decision

In a two-stage supply chain comprising a supplier and a retailer, we incorporate the concepts of channel power and fairness concern to analyze the supplier’s decision on whether to open an online direct channel or not. With an online channel, the supplier competes with its retailer in a dual-channel system, but the retailer may shift part or all orders to another supplier as the counteraction. Otherwise, the supplier only obtains the wholesaling profit but loses that from the online market. Taking the retail prices and the quality of the online product as decision variables, we show that the introduction of a direct channel leads to the decline of online product’s quality and retail price. Interestingly, we find that the retailer’s profit may be decreasing in its channel power. Comparing the outcomes with those from pure competing channels, we find that the retailer’s order shifting strategy may result in a lose–lose situation for the two firms, but it can be a credible threat to the supplier’s market entry. We also find that the supplier’s fairness concern may effectively reduce its incentives to open an online channel.

Sell through a local retailer or operate your own store? Channel structure and risk analysis

Either a company store or a local retailer can be used to establish a sales channel. For high-value products with an existing competing brand, this choice represents a crucial decision a brand-named manufacturer must make for a new market. Under the burden of high operating costs, a weak local retailer may find it difficult to sustain and using it may hurt the manufacturer’s chance to successfully establish the channel. We consider a chain-to-chain competition model comprising two manufacturers and two retailers, in which one retailer may be unable to continue its operation because of high financing costs. We identify a threshold policy for the manufacturers to select the channel structure. Interestingly, we find that channel integration is not always better. Without the consideration of contract termination risk, the manufacturer will bear the operating expenses when its opportunity cost is low or the retailer’s financing cost is sufficiently high. In equilibrium, the manufacturers will choose either (decentralized, decentralized) or (integrated, integrated) channel structure. However, when the termination risk is considered, the equilibrium channel structure would be more likely (integrated, integrated) or (integrated, decentralized).

Leader-Based Collective Bargaining: Cooperation Mechanism and Incentive Analysis

We study leader-based collective bargaining LCB, under which a leading buyer leader and a following buyer follower form an alliance to jointly purchase a common component from a supplier. Although the leader and the follower cooperate in their component purchase, they compete in selling their end products. We first analyze the most common and simple form of LCB, equal price LCB, under which the follower pays to the leader the same wholesale price that the leader obtains from his negotiation with the supplier. We compare each buyers profit under the equal price LCB with the benchmark where each buyer purchases separately from the supplier. We find that although the alliance might obtain a lower wholesale price and although the leader is always better off under equal price LCB, the follower can be worse off if the competition intensity of the leaders and followers products is within an intermediate region. We identify a competition effect resulting from equal price LCB that can place the follower at a disadvantage in the competition. This finding implies that the equal price LCB might not be sustainable in practice. In view of this limitation, we investigate an alternative form of LCB, fixed price LCB, under which the follower pays a fixed price to the leader regardless of the wholesale price the leader obtains from the supplier. We show that fixed price LCB benefits not only the leader but also the follower, compared with separate purchases, which implies that fixed price LCB always achieves a win-win outcome for the buyers. Our analysis further shows that even the supplier might benefit from this form of LCB.

Optimal pricing and inventory policy with order cancelations under the cash-on-delivery payment scheme

Considering a periodic review system where the online seller allows the customers to pay when the products are delivered to them (referred as cash-on-delivery payment scheme in this paper), the authors investigate the seller’s joint pricing and inventory control policy with a finite planning horizon. In particular, the authors incorporate the customers’ possible order cancellation behavior with the cash-on-delivery scheme. It can be proven that the base-stock list price policy is optimal under mild conditions. The authors also analyze the impact of the customers’ forward looking behavior on the optimal policy.

The effects of an undisclosed regular price and a positive leadtime in a presale mechanism

A presale program is popular with manufacturers who wish to reduce the risk posed by uncertain demands. We introduce a new price mechanism in which the manufacturer during the presale period does not disclose the exact regular price in the sale period although it is guaranteed to customers to be higher than the presale price. As positive leadtime is much overlooked in presale models, we analyze the rationality of including one. The numerical results in this paper show that both the specific price mechanism and the positive leadtime have significant effects on the manufacturer’s policy (production quantity, presale price, regular price), the expected profit, and customer behaviors. The optimal discount rate should be greater than 50 percent. This conclusion is consistent with existing results of surveys on saturation points. The manufacturer can take advantage of the latest information on demand gathered in the presale period to update their policy and increase their expected profit.

Buy now and price later: Supply contracts with time-consistent mean–variance financial hedging

Abstract We consider a two-stage supply chain comprising one risk-neutral manufacturer (he) and one risk-averse retailer (she), where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer. The retailer then sells the final products to the market at a stochastic clearance price. We investigate a flexible price contract that allows the manufacturer to determine the product wholesale price, and the retailer to determine the order quantity, based on the future spot price of consumption commodities. Compared with the simple wholesale price contract, a win–win situation can be achieved under the flexible price contract when the manufacturers postponed processing cost is lower than a threshold. However, under this flexible price contract the retailer may suffer from the commodity price volatility, even if she does not procure the commodities directly. We further investigate how the risk-averse retailer conducts mean–variance financial hedging by purchasing consumption commodity futures contracts. We formulate the problem using a dynamic programming model and derive a closed-form time-consistent financial hedging policy. Through numerical experiments, we show that the commodity price risk from the manufacturer to the retailer is effectively mitigated with the hedging, and the benefits of the flexible price contract are maintained.