Qinglong Gou

Supply chain pricing decisions with price reduction during the selling season

For most seasonal products such as fashion clothes, vogue handbags, style cell phones and so on, there are usually price reductions during the selling seasons. With such a skimming price strategy, a retailer can not only capture more consumers’ surplus, but also form a higher reference price in consumers’ mind. To investigate the impact of reference price effects on the supply chain decisions, in this paper we propose a two-period pricing model with such price reduction for a supply chain consisting of a single manufacturer and a single retailer. Besides the optimal decisions for the scenario that the two channel members integrate together (the I-Scenario), we derive the equilibrium pricing decisions of the two channel members in three different scenarios, i.e. the N-Scenario (no quick response ability), the F-Scenario (full quick response ability) and the L-Scenario (limited quick response ability), representing the supply chain’s different ability in quick response. Analysis and comparison not only illustrate the impact of reference price effects on the price decisions of the two channel members, but also show the benefit of a supply chain’s quick response ability. We also introduce some contacts to coordinate the supply chain.

Horizontal cooperative programmes and cooperative advertising

Horizontal inter-firm cooperation is an important form of cooperation between firms and has recently received increased attention from both researchers and professionals. This article examines advertising strategies involving horizontal cooperative programmes, and we focus on joint ventures and contractual alliances that characterise two prominent horizontal cooperative programmes. A modified Nerlove–Arrow model is employed to describe advertising efforts on goodwill and sales of products. Differential game theory is utilised to evaluate three cooperative scenarios. The scenarios include (i) no cooperative programme between two firms; (ii) the cooperative mode between the two firms is a joint venture; and (iii) the cooperative mode is a contractual alliance. The two firms’ optimal advertising levels and profits for their own brands as well as for the cooperative programmes are calculated and compared for different cooperative scenarios. For example, both firms show increases in their individual advertising levels when they are involved in a cooperative programme. Insight into the appropriate advertising, cost allocations and profit-sharing ratios are developed and analysed. It is demonstrated that cooperative programmes such as a joint venture or a contractual alliance are more profitable than non-cooperation. Using the model, analysis reveals that cooperation through a contractual alliance provides an opportunity to negotiate which of the two firms gets to control the advertising decisions for the cooperative programme’s product(s). Finally, it is noted that cooperation that utilises a contractual alliance occupies the dominant status for most of the profit-sharing patterns.

A Modified Joint Inventory Policy For Vmi Systems

Vendor managed inventory (VMI) is a supply-chain initiative in which the vendor is authorized to manage inventories of agreed upon stock-keeping-units at retail locations. In this paper, a modified joint inventory policy is introduced for VMI systems where the vendor takes a standard (s, S) policy and the retailers utilize can-order policies.Under the regime of a can-order policy, each retailers inventory is controlled by three variables s, c and S. Once the inventory position of retailer k reaches its must-order level s(k), a dispatch from the vendor to retailers is triggered. At the same time, any retailer j, with inventory position at or below its can-order level c(j), is included in the dispatch and thus an economical consolidated dispatch quantity accumulates.To formulate the policy, a renewal theoretic model for the case of Poisson demands is developed. Due to the complexity of the problem, it is difficult to get the analytical solution and thus simulations are utilized to obtain an approximate optimal decision. Finally, the results from simulations show that about 5 to 20 percent of the cost can be saved from utilizing of the modified joint policy, comparing with the standard joint (s, S) policy where both the vendor and retailers take (s, S) policies.

Ingredient Branding Strategies in an Assembly Supply Chain: Models and Analysis

We consider a supply chain in which an original equipment manufacturer (OEM) procures a key component from a supplier. We consider an ingredient branding strategy under which the supplier and the OEM form a brand alliance. Specifically, the supplier invests in ingredient branding to build up her goodwill and additionally she shares a portion of the OEM’s advertising cost through a cooperative advertising programme. Under a differential game framework, we obtain the equilibrium advertising efforts of the supplier and OEM, and the supplier’s equilibrium subsidy rate for the cooperative advertising programme. We further extend the model to the case in which the OEM procures two complementary components from two suppliers. We consider three different scenarios of supplier interaction, i.e. the suppliers are (I) independent, (II) allied and keep two brands and (III) allied and keep one brand. We demonstrate how the different interactions between suppliers affect the channel members’ advertising efforts, goodwill levels and their profits.

Supply chain performance under pull or push contracts in the presence of a market disruption

Recently, market disruptions are more prone to emerging in supply chains. To investigate the impact of such a phenomenon on the performance of supply chain members and the entire supply chain, we consider a two-tier supply chain that consists of one manufacturer (he) and one retailer (she). The retailer orders products from the manufacturer and then sells them to a market in the presence of a potential market disruption caused by a random event. According to the timing of the retailers order, we study two types of wholesale price contracts, that is, the pull contract (the retailer orders only during the selling season and the manufacturer bears the full inventory risk) and the push contract (the retailer only orders before the selling season starts and bears the full inventory risk). We derive the equilibrium wholesale prices, retail prices, production quantities, order quantities, and corresponding profits under each contract, respectively. By making a comparison between these two types of contracts, we find that when the potential market disruption is severe, the pull contract performs better than the push contract for the supply chain, while the push contract is more attractive for the supply chain when the potential market disruption is relatively mild. Moreover, the manufacturer always prefers the push contract, and the retailer always prefers the pull contract. We also show that the pull or push contract with revenue sharing can still coordinate the supply chain with the potential market disruption.

Joint pricing and advertising strategy with reference price effect

Consumers are susceptible to reference price effects when they make purchase decisions for a certain product. Meanwhile, the sales price and advertisement are the determinable factors that have impact on consumers’ reference price which are also fundamental marketing strategies. Therefore, how to determine an appropriate sales price and advertising effort level to maximise firms’ profits is an essential task. A joint pricing and advertising problem for a monopolistic firm with consideration of reference price effect is investigated, where consumer demand rate is price-sensitivity and depends on the gap between the sales price and the reference price in consumers’ mind. An optimisation model is established to maximise the firm’s total profit by making a joint pricing and advertising strategy. The static and dynamic joint strategies are obtained by applying Pontryagin’s maximum principle. Results show that the dynamic strategies dominate the static ones. Furthermore, the dynamic pricing and dynamic advertising strategies are strategic complements. Additionally, the length of the sales period plays a key role in determining the superiority of the two dynamic strategies. Specifically, a relatively short sales period highlights the value of the dynamic advertising while a long sales period strengthens the function of the dynamic pricing.

Cooperative Advertising in a Supply Chain with Horizontal Competition

Cooperative advertising programs are usually provided by manufacturers to stimulate retailers investing more in local advertising to increase the sales of their products or services. While previous literature on cooperative advertising mainly focuses on a “single-manufacturer single-retailer” framework, the decision-making framework with “multiple-manufacturer single-retailer” becomes more realistic because of the increasing power of retailers as well as the increased competition among the manufacturers. In view of this, in this paper we investigate the cooperative advertising program in a “two-manufacturer single-retailer” supply chain in three different scenarios; that is, (i) each channel member makes decisions independently; (ii) the retailer is vertically integrated with one manufacturer; (iii) two manufacturers are horizontally integrated. Utilizing differential game theory, the open-loop equilibrium-advertising strategies of each channel member are obtained and compared. Also, we investigate the effects of competitive intensity on the firm’s profit in three different scenarios by using the numerical analysis.

Cooperative advertising with accrual rate in a dynamic supply chain

We consider a supply chain in which a manufacturer stimulates his retailers investing more local advertising expenditures through a cooperative advertising program (Co-op). Co-op advertising programs usually involve two important contractual terms, a participation rate and an accrual rate. While previous literatures have discussed the participation rate excessively, they seldom study the role of the accrual rate in cooperative advertising. To investigate the impact of the accrual rate on cooperative advertising decisions, we develop a dynamic cooperative advertising model for a single manufacturer–single retailer supply chain that incorporates the participation rate and the accrual rate simultaneously. We derive the equilibrium co-op decisions of two channel members, including the manufacturer’s national advertising efforts and his participation rate, as well as the retailer’s local advertising expenditure. Our analysis of the equilibrium solutions shows that an increase in participation rate will not always increase the retailer’s advertising efforts because of the accrual rate. Also, both the manufacturer and retailer can benefit from a high accrual rate.

An allocation game model with reciprocal behavior and its applications in supply chain pricing decisions

Commonly, people are much nicer in response to friendly actions and much nastier and even brutal in response to hostile actions. In social psychology, such a phenomenon is called reciprocity. As an extension of the standard Stackelberg game, we propose a new allocation game framework with consideration of such reciprocal behavior. Specifically, we consider a situation in which the follower evaluates the leaders intention based on the leaders action and then may take either a positive or negative reciprocal action. We also apply the new framework in a supply chain pricing problem to investigate the impact of the retailer’s reciprocal behavior on pricing decisions, obtaining the following interesting results. First, the supplier should take into account the retailers personality and offer a wholesale price based on it. Second, while the retailer can benefit from his reciprocal behavior, the supplier suffers in most cases. Finally, the retailers reciprocal behavior can help alleviate the double marginalization effect, and thus lead to a performance improvement in the whole supply chain.

Option Contracts: A Solution for Overloading Problems in the Delivery Service Supply Chain

Owing to the limited service capacity of express delivery providers, most online retailers have to reject many orders during hot selling seasons. In this paper, we consider an express delivery service supply chain consisting of an express delivery provider and an online retailer whereby the selling season includes both regular periods and online sales periods. Utilizing a modified newsvendor model, we derive the express delivery provider’s optimal capacity decision and find that the overloading problem cannot be avoided because delivery service cannot be inventoried. To solve such a problem, we introduce an option contract to coordinate the supply chain. By allowing the online retailer to book the capacity, the express delivery provider can rent capacity from a third party in advance. Results show this approach can mitigate the problem significantly. We also extend our model to a supply chain consisting of a delivery provider and two retailers.