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A two-stage supply chain with demand sensitive to price, delivery time, and reliability of delivery

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  • Tiaojun Xiao

    (Nanjing University)

  • Xiangtong Qi

    (The Hong Kong University of Science and Technology)

Abstract

We consider a two-stage supply chain with one supplier and one manufacturer. The manufacturer faces a Poisson demand process where the arrival rate depends on the selling price, the announced delivery time, and the delivery reliability defined as the probability of satisfying the announced delivery time. Such a demand model generalizes the works in the literature by simultaneously considering the above three demand sensitivity factors. The main purpose of this paper is to study the equilibrium decisions in the supply chain with an all-unit quantity discount contract. We consider four scenarios regarding whether the leadtime standard, the delivery reliability standard, and the manufacturer’s capacity are endogenous, and whether the manufacturer’s production cost is its private information. We find that an all-unit quantity discount scheme can coordinate the supply chain for most cases. Managerial insights are observed regarding the impact of the three demand sensitivity factors. For example, the breakpoint in an optimal quantity discount contract always increases with the delivery reliability sensitivity under an exogenous delivery reliability, but may decrease under an endogenous delivery reliability; with asymmetric information, a higher variance of the manufacturer’s unit production costs leads to a lower unit wholesale price for the low-cost manufacturer.

Suggested Citation

  • Tiaojun Xiao & Xiangtong Qi, 2016. "A two-stage supply chain with demand sensitive to price, delivery time, and reliability of delivery," Annals of Operations Research, Springer, vol. 241(1), pages 475-496, June.
    • Handle: RePEc:spr:annopr:v:241:y:2016:i:1:d:10.1007_s10479-012-1085-6
    DOI: 10.1007/s10479-012-1085-6
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    6. Ramzi Hammami & Yannick Frein & Abduh Albana, 2020. "Delivery time quotation and pricing in two-stage supply chains: Centralized decision-making with global and local managerial approaches," Post-Print hal-02898219, HAL.
    7. Ma, Xueli & Wang, Jian & Bai, Qingguo & Wang, Shuyun, 2020. "Optimization of a three-echelon cold chain considering freshness-keeping efforts under cap-and-trade regulation in Industry 4.0," International Journal of Production Economics, Elsevier, vol. 220(C).
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    13. Hammami, Ramzi & Frein, Yannick & Albana, Abduh S., 2020. "Delivery time quotation and pricing in two-stage supply chains: Centralized decision-making with global and local managerial approaches," European Journal of Operational Research, Elsevier, vol. 286(1), pages 164-177.
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    15. Sayid Albana, Abduh & Frein, Yannick & Hammami, Ramzi, 2018. "Effect of a lead time-dependent cost on lead time quotation, pricing, and capacity decisions in a stochastic make-to-order system with endogenous demand," International Journal of Production Economics, Elsevier, vol. 203(C), pages 83-95.
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