IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v185y2017icp150-161.html
   My bibliography  Save this article

Turn bad into good: Using transshipment-before-buyback for disruptions of stochastic demand

Author

Listed:
  • Ji, Xiang
  • Sun, Jiasen
  • Wang, Zebin

Abstract

This paper presents a general characterization of demand disruption in the supply chain for stochastic consumer demand, which has an increasing generalized failure rate. A heuristic transshipment-before-buyback (TBB) contract is developed for the managers of both manufacturers and retailers to enable them to benefit from the demand disruption. A TBB contract is theoretically shown to be better than a classical pure buyback contract, which has the same buyback price as the TBB contract. Our results also show that, in the presence of a buyback promise, the transshipment price has no impact on the manufacturer's incentive to induce retailers to undertake transshipment. In addition, the manufacturer has an incentive to meet part of the transshipment cost when it is sufficiently large. This effect is greater when the manufacturer is loss averse.

Suggested Citation

  • Ji, Xiang & Sun, Jiasen & Wang, Zebin, 2017. "Turn bad into good: Using transshipment-before-buyback for disruptions of stochastic demand," International Journal of Production Economics, Elsevier, vol. 185(C), pages 150-161.
    • Handle: RePEc:eee:proeco:v:185:y:2017:i:c:p:150-161
    DOI: 10.1016/j.ijpe.2016.12.019
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527316303978
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2016.12.019?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lawrence W. Robinson, 1990. "Optimal and Approximate Policies in Multiperiod, Multilocation Inventory Models with Transshipments," Operations Research, INFORMS, vol. 38(2), pages 278-295, April.
    2. Qi, Xiangtong & Bard, Jonathan F. & Yu, Gang, 2004. "Supply chain coordination with demand disruptions," Omega, Elsevier, vol. 32(4), pages 301-312, August.
    3. Tiaojun Xiao & Gang Yu & Zhaohan Sheng & Yusen Xia, 2005. "Coordination of a Supply Chain with One-Manufacturer and Two-Retailers Under Demand Promotion and Disruption Management Decisions," Annals of Operations Research, Springer, vol. 135(1), pages 87-109, March.
    4. ., 2012. "Global imbalances and the dollar standard," Chapters, in: The New Global Political Economy, chapter 2, pages 47-78, Edward Elgar Publishing.
    5. Xiao, Tiaojun & Qi, Xiangtong & Yu, Gang, 2007. "Coordination of supply chain after demand disruptions when retailers compete," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 162-179, September.
    6. Kevin B. Hendricks & Vinod R. Singhal, 2014. "The Effect of Demand–Supply Mismatches on Firm Risk," Production and Operations Management, Production and Operations Management Society, vol. 23(12), pages 2137-2151, December.
    7. Cao, Qingning & Geng, Xianjun & Zhang, Jun, 2015. "Strategic Role of Retailer Bundling in a Distribution Channel," Journal of Retailing, Elsevier, vol. 91(1), pages 50-67.
    8. Jing Shao & Harish Krishnan & S. Thomas McCormick, 2011. "Incentives for Transshipment in a Supply Chain with Decentralized Retailers," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 361-372, July.
    9. Jun Zhang, 2005. "Transshipment and Its Impact on Supply Chain Members' Performance," Management Science, INFORMS, vol. 51(10), pages 1534-1539, October.
    10. Yinghao Zhang & Karen Donohue & Tony Haitao Cui, 2016. "Contract Preferences and Performance for the Loss-Averse Supplier: Buyback vs. Revenue Sharing," Management Science, INFORMS, vol. 62(6), pages 1734-1754, June.
    11. Oecd, 2012. "How Is the Global Talent Pool Changing?," Education Indicators in Focus 5, OECD Publishing.
    12. Hou, Jing & Zeng, Amy Z. & Zhao, Lindu, 2010. "Coordination with a backup supplier through buy-back contract under supply disruption," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(6), pages 881-895, November.
    13. Lingxiu Dong & Nils Rudi, 2004. "Who Benefits from Transshipment? Exogenous vs. Endogenous Wholesale Prices," Management Science, INFORMS, vol. 50(5), pages 645-657, May.
    14. Michael K. Lim & Achal Bassamboo & Sunil Chopra & Mark S. Daskin, 2013. "Facility Location Decisions with Random Disruptions and Imperfect Estimation," Manufacturing & Service Operations Management, INFORMS, vol. 15(2), pages 239-249, May.
    15. Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
    16. Mahesh Nagarajan & Yehuda Bassok, 2008. "A Bargaining Framework in Supply Chains: The Assembly Problem," Management Science, INFORMS, vol. 54(8), pages 1482-1496, August.
    17. Xiao, Tiaojun & Qi, Xiangtong, 2008. "Price competition, cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers," Omega, Elsevier, vol. 36(5), pages 741-753, October.
    18. Lingxiu Dong & Brian Tomlin, 2012. "Managing Disruption Risk: The Interplay Between Operations and Insurance," Management Science, INFORMS, vol. 58(10), pages 1898-1915, October.
    19. Kwan Eng Wee & Maqbool Dada, 2005. "Optimal Policies for Transshipping Inventory in a Retail Network," Management Science, INFORMS, vol. 51(10), pages 1519-1533, October.
    20. ., 2012. "Globalization and income inequalities," Chapters, in: The New Global Political Economy, chapter 3, pages 79-105, Edward Elgar Publishing.
    21. Xinxin Hu & Izak Duenyas & Roman Kapuscinski, 2007. "Existence of Coordinating Transshipment Prices in a Two-Location Inventory Model," Management Science, INFORMS, vol. 53(8), pages 1289-1302, August.
    22. Hung-Po Chao, 1987. "Inventory Policy in the Presence of Market Disruptions," Operations Research, INFORMS, vol. 35(2), pages 274-281, April.
    23. Daniel Granot & Greys Sošić, 2003. "A Three-Stage Model for a Decentralized Distribution System of Retailers," Operations Research, INFORMS, vol. 51(5), pages 771-784, October.
    24. Chen, Kebing & Xiao, Tiaojun, 2009. "Demand disruption and coordination of the supply chain with a dominant retailer," European Journal of Operational Research, Elsevier, vol. 197(1), pages 225-234, August.
    25. Hui Zhao & Vinayak Deshpande & Jennifer K. Ryan, 2005. "Inventory Sharing and Rationing in Decentralized Dealer Networks," Management Science, INFORMS, vol. 51(4), pages 531-547, April.
    26. Zhou, Li & Turvey, Calum G. & Hu, Wuyang & Ying, Ruiyao, 2016. "Fear and trust: How risk perceptions of avian influenza affect Chinese consumers’ demand for chicken," China Economic Review, Elsevier, vol. 40(C), pages 91-104.
    27. Yufei Ren & Rachel Croson, 2013. "Overconfidence in Newsvendor Orders: An Experimental Study," Management Science, INFORMS, vol. 59(11), pages 2502-2517, November.
    28. Maurice E. Schweitzer & Gérard P. Cachon, 2000. "Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence," Management Science, INFORMS, vol. 46(3), pages 404-420, March.
    29. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    30. Botescu Ion, 2012. "Romania in a More Globalized World," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 20-24, May.
    31. ., 2012. "Global trade, regional trade and emerging Europe," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), European Integration in a Global Economy, chapter 9, pages 82-90, Edward Elgar Publishing.
    32. Seung Jae Park & Guoming Lai & Sridhar Seshadri, 2016. "Inventory Sharing in the Presence of Commodity Markets," Production and Operations Management, Production and Operations Management Society, vol. 25(7), pages 1245-1260, July.
    33. Teck-Hua Ho & Juanjuan Zhang, 2008. "Designing Pricing Contracts for Boundedly Rational Customers: Does the Framing of the Fixed Fee Matter?," Management Science, INFORMS, vol. 54(4), pages 686-700, April.
    34. Zhang, Wei-Guo & Fu, Junhui & Li, Hongyi & Xu, Weijun, 2012. "Coordination of supply chain with a revenue-sharing contract under demand disruptions when retailers compete," International Journal of Production Economics, Elsevier, vol. 138(1), pages 68-75.
    35. Xiao Huang & Greys Soši'{c}, 2010. "Transshipment of Inventories: Dual Allocations vs. Transshipment Prices," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 299-318, February.
    36. Nagihan Çömez & Kathryn E. Stecke & Metin Çakanyildirim, 2012. "In-Season Transshipments Among Competitive Retailers," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 290-300, April.
    37. Jagmohan S. Raju & Raj Sethuraman & Sanjay K. Dhar, 1995. "The Introduction and Performance of Store Brands," Management Science, INFORMS, vol. 41(6), pages 957-978, June.
    38. Antero V.E. Ollila, 2012. "The Roles of Greenhouse Gases in Global Warming," Energy & Environment, , vol. 23(5), pages 781-799, July.
    39. Maqbool Dada & Nicholas C. Petruzzi & Leroy B. Schwarz, 2007. "A Newsvendor's Procurement Problem when Suppliers Are Unreliable," Manufacturing & Service Operations Management, INFORMS, vol. 9(1), pages 9-32, August.
    40. Ravi Anupindi & Yehuda Bassok & Eitan Zemel, 2001. "A General Framework for the Study of Decentralized Distribution Systems," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 349-368, February.
    41. Bin Hu & Dimitris Kostamis, 2015. "Managing Supply Disruptions when Sourcing from Reliable and Unreliable Suppliers," Production and Operations Management, Production and Operations Management Society, vol. 24(5), pages 808-820, May.
    42. Kevin B. Hendricks & Vinod R. Singhal, 2005. "Association Between Supply Chain Glitches and Operating Performance," Management Science, INFORMS, vol. 51(5), pages 695-711, May.
    43. Gregory A. DeCroix, 2013. "Inventory Management for an Assembly System Subject to Supply Disruptions," Management Science, INFORMS, vol. 59(9), pages 2079-2092, September.
    44. Hau L. Lee, 1987. "A Multi-Echelon Inventory Model for Repairable Items with Emergency Lateral Transshipments," Management Science, INFORMS, vol. 33(10), pages 1302-1316, October.
    45. Li Jiang & Ravi Anupindi, 2010. "Customer-Driven vs. Retailer-Driven Search: Channel Performance and Implications," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 102-119, January.
    46. Chao Liang & Suresh P. Sethi & Ruixia Shi & Jun Zhang, 2014. "Inventory Sharing with Transshipment: Impacts of Demand Distribution Shapes and Setup Costs," Production and Operations Management, Production and Operations Management Society, vol. 23(10), pages 1779-1794, October.
    47. Iea, 2012. "The Global Value of Coal," IEA Energy Papers 2012/3, OECD Publishing.
    48. Xin Fang & Soo-Haeng Cho, 2014. "Stability and Endogenous Formation of Inventory Transshipment Networks," Operations Research, INFORMS, vol. 62(6), pages 1316-1334, December.
    49. Cao, Erbao & Wan, Can & Lai, Mingyong, 2013. "Coordination of a supply chain with one manufacturer and multiple competing retailers under simultaneous demand and cost disruptions," International Journal of Production Economics, Elsevier, vol. 141(1), pages 425-433.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiang Ji & Jie Wu & Qingyuan Zhu & Jiasen Sun, 2019. "Using a hybrid heterogeneous DEA method to benchmark China’s sustainable urbanization: an empirical study," Annals of Operations Research, Springer, vol. 278(1), pages 281-335, July.
    2. Jie Wu & Zhixin Chen & Xiang Ji, 2020. "Sustainable trade promotion decisions under demand disruption in manufacturer-retailer supply chains," Annals of Operations Research, Springer, vol. 290(1), pages 115-143, July.
    3. Gaidi Tian & Chunfa Li, 2023. "How Can We Promote Smartphone Leasing via a Buyback Program?," Sustainability, MDPI, vol. 15(14), pages 1-29, July.
    4. Chun-Hung Chiu & Gang Hao & Xin Dai & Hang Xie, 2020. "Inventory sharing of professional optics product supply chain with equal power agents," Annals of Operations Research, Springer, vol. 291(1), pages 169-194, August.
    5. Park, Seung Jae, 2018. "Swapping inventory between competing firms," International Journal of Production Economics, Elsevier, vol. 199(C), pages 26-46.
    6. Zhao, Yujie & Zhou, Hong & Leus, Roel, 2022. "Recovery from demand disruption: Two-stage financing strategy for a capital-constrained supply chain under uncertainty," European Journal of Operational Research, Elsevier, vol. 303(2), pages 699-718.
    7. Tarhini, Hussein & Karam, Mario & Jaber, Mohamad Y., 2020. "An integrated single-vendor multi-buyer production inventory model with transshipments between buyers," International Journal of Production Economics, Elsevier, vol. 225(C).
    8. Li, Guo & Li, Lin & Sethi, Suresh P. & Guan, Xu, 2019. "Return strategy and pricing in a dual-channel supply chain," International Journal of Production Economics, Elsevier, vol. 215(C), pages 153-164.
    9. Liu, Zhongyi & Li, Mengyu & Zhai, Xin, 2022. "Managing supply chain disruption threat via a strategy combining pricing and self-protection," International Journal of Production Economics, Elsevier, vol. 247(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jie Wu & Zhixin Chen & Xiang Ji, 2020. "Sustainable trade promotion decisions under demand disruption in manufacturer-retailer supply chains," Annals of Operations Research, Springer, vol. 290(1), pages 115-143, July.
    2. Jing Shao & Harish Krishnan & S. Thomas McCormick, 2011. "Incentives for Transshipment in a Supply Chain with Decentralized Retailers," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 361-372, July.
    3. Paterson, Colin & Kiesmüller, Gudrun & Teunter, Ruud & Glazebrook, Kevin, 2011. "Inventory models with lateral transshipments: A review," European Journal of Operational Research, Elsevier, vol. 210(2), pages 125-136, April.
    4. Ying Rong & Lawrence V. Snyder & Yang Sun, 2010. "Inventory sharing under decentralized preventive transshipments," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(6), pages 540-562, September.
    5. Dong, Yan & Xu, Kefeng & Evers, Philip T., 2012. "Transshipment incentive contracts in a multi-level supply chain," European Journal of Operational Research, Elsevier, vol. 223(2), pages 430-440.
    6. Ping Zhang & Hong Yan & King Wah Pang, 2019. "Inventory Sharing Strategy for Disposable Medical Items between Two Hospitals," Sustainability, MDPI, vol. 11(22), pages 1-21, November.
    7. Li, Ying & Liao, Yi & Hu, Xinxin & Shen, Wenjing, 2020. "Lateral transshipment with partial request and random switching," Omega, Elsevier, vol. 92(C).
    8. Andrew M. Davis & Rihuan Huang & Douglas J. Thomas, 2022. "Retailer Inventory Sharing in Two-Tier Supply Chains: An Experimental Investigation," Management Science, INFORMS, vol. 68(12), pages 8773-8790, December.
    9. Silbermayr, Lena, 2020. "A review of non-cooperative newsvendor games with horizontal inventory interactions," Omega, Elsevier, vol. 92(C).
    10. Park, Seung Jae, 2018. "Swapping inventory between competing firms," International Journal of Production Economics, Elsevier, vol. 199(C), pages 26-46.
    11. Huang, Xiao & Sosic, Greys, 2010. "Repeated newsvendor game with transshipments under dual allocations," European Journal of Operational Research, Elsevier, vol. 204(2), pages 274-284, July.
    12. Yi Liao & Jun Li & Xinxin Hu & Ying Li & Wenjing Shen, 2020. "Application of Lateral Transshipment in Cost Reduction of Decentralized Systems," Sustainability, MDPI, vol. 12(12), pages 1-21, June.
    13. Xin Fang & Soo-Haeng Cho, 2014. "Stability and Endogenous Formation of Inventory Transshipment Networks," Operations Research, INFORMS, vol. 62(6), pages 1316-1334, December.
    14. Yan, Xinghao & Zhao, Hui, 2015. "Inventory sharing and coordination among n independent retailers," European Journal of Operational Research, Elsevier, vol. 243(2), pages 576-587.
    15. Han, Xiaohua & Wu, Haiyan & Yang, Qianxia & Shang, Jennifer, 2016. "Reverse channel selection under remanufacturing risks: Balancing profitability and robustness," International Journal of Production Economics, Elsevier, vol. 182(C), pages 63-72.
    16. Xinxin Hu & Izak Duenyas & Roman Kapuscinski, 2008. "Optimal Joint Inventory and Transshipment Control Under Uncertain Capacity," Operations Research, INFORMS, vol. 56(4), pages 881-897, August.
    17. Xiaofang Liu & Jian Li & Jun Wu & Guoqing Zhang, 2017. "Coordination of supply chain with a dominant retailer under government price regulation by revenue sharing contracts," Annals of Operations Research, Springer, vol. 257(1), pages 587-612, October.
    18. Shan Li & Kay‐Yut Chen, 2020. "The Commitment Conundrum of Inventory Sharing," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 353-370, February.
    19. Liu, Weihua & Liu, Yang & Zhu, Donglei & Wang, Yijia & Liang, Zhicheng, 2016. "The influences of demand disruption on logistics service supply chain coordination: A comparison of three coordination modes," International Journal of Production Economics, Elsevier, vol. 179(C), pages 59-76.
    20. Zhang, Sufang & He, Yongxiu, 2013. "Analysis on the development and policy of solar PV power in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 21(C), pages 393-401.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:185:y:2017:i:c:p:150-161. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.