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A Stackelberg game and its improvement in a VMI system with a manufacturing vendor

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  • Yu, Yugang
  • Chu, Feng
  • Chen, Haoxun

Abstract

Vendor managed inventory (VMI) is an inventory management strategy to let a vendor manage his retailers' inventories, which makes the vendor have the opportunity to obtain some inventory and market-related information of his retailers. This paper discusses how the vendor can take advantage of this information for increasing his own profit by using a Stackelberg game in a VMI system. The vendor here is a manufacturer who procures raw materials to produce a finished product and supplies it at the same wholesale price to multiple retailers. The retailers then sell the product in independent markets at retail prices. Solution procedures are developed to find the Stackelberg game equilibrium that each enterprise is not willing to deviate from for maximizing his own profit. The equilibrium makes the manufacturer benefited, and the retailers' profits maximized. The equilibrium can then be improved for further benefiting the manufacturer and his retailers if the retailers are willing to cooperate with the manufacturer by using a cooperative contract. Finally, a numerical example and the corresponding sensitivity analysis are given to illustrate that: (1) the manufacturer can benefit from his leadership, and monopolize the added profit of the VMI system in some cases; (2) The manufacturer can further improve his own profit, and then the retailers' profits by the cooperative contract, as compared to the Stackelberg equilibrium; (3) market and raw material related parameters have significant influence on every enterprise's net profit.

Suggested Citation

  • Yu, Yugang & Chu, Feng & Chen, Haoxun, 2009. "A Stackelberg game and its improvement in a VMI system with a manufacturing vendor," European Journal of Operational Research, Elsevier, vol. 192(3), pages 929-948, February.
  • Handle: RePEc:eee:ejores:v:192:y:2009:i:3:p:929-948
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yu, Yugang & Huang, George Q., 2010. "Nash game model for optimizing market strategies, configuration of platform products in a Vendor Managed Inventory (VMI) supply chain for a product family," European Journal of Operational Research, Elsevier, vol. 206(2), pages 361-373, October.
    2. Cai, Jianhu & Hu, Xiaoqing & Tadikamalla, Pandu R. & Shang, Jennifer, 2017. "Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy," European Journal of Operational Research, Elsevier, vol. 261(1), pages 143-153.
    3. Qu, T. & Huang, George Q. & Zhang, Yingfeng & Dai, Q.Y., 2010. "A generic analytical target cascading optimization system for decentralized supply chain configuration over supply chain grid," International Journal of Production Economics, Elsevier, vol. 127(2), pages 262-277, October.
    4. Xujin Pu & Lei Gong & Guanghua Han, 0. "A feasible incentive contract between a manufacturer and his fairness-sensitive retailer engaged in strategic marketing efforts," Journal of Intelligent Manufacturing, Springer, vol. 0, pages 1-14.
    5. Pibernik, Richard & Zhang, Yingying & Kerschbaum, Florian & Schröpfer, Axel, 2011. "Secure collaborative supply chain planning and inverse optimization - The JELS model," European Journal of Operational Research, Elsevier, vol. 208(1), pages 75-85, January.
    6. Hamed Jafari & Seyed Reza Hejazi & Morteza Rasti-Barzoki, 2016. "Pricing Decisions in Dual-Channel Supply Chain Including Monopolistic Manufacturer and Duopolistic Retailers: A Game-Theoretic Approach," Journal of Industry, Competition and Trade, Springer, vol. 16(3), pages 323-343, September.
    7. Yu, Yugang & Wang, Zheng & Liang, Liang, 2012. "A vendor managed inventory supply chain with deteriorating raw materials and products," International Journal of Production Economics, Elsevier, vol. 136(2), pages 266-274.
    8. Leng, Mingming & Parlar, Mahmut, 2009. "Lead-time reduction in a two-level supply chain: Non-cooperative equilibria vs. coordination with a profit-sharing contract," International Journal of Production Economics, Elsevier, vol. 118(2), pages 521-544, April.
    9. Qiu, Xuan & Huang, George Q., 2016. "Transportation service sharing and replenishment/delivery scheduling in Supply Hub in Industrial Park (SHIP)," International Journal of Production Economics, Elsevier, vol. 175(C), pages 109-120.
    10. Cai, Gangshu (George) & Chiang, Wen-Chyuan & Chen, Xiangfeng, 2011. "Game theoretic pricing and ordering decisions with partial lost sales in two-stage supply chains," International Journal of Production Economics, Elsevier, vol. 130(2), pages 175-185, April.
    11. Stanislaw Bylka, 2010. "A Stackelberg game in a production-distribution system with multiple buyers," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 2, pages 5-24.
    12. repec:eee:joreco:v:40:y:2018:i:c:p:40-47 is not listed on IDEAS
    13. Yu, Yugang & Hong, Zhaofu & Zhang, Linda L. & Liang, Liang & Chu, Chengbin, 2013. "Optimal selection of retailers for a manufacturing vendor in a vendor managed inventory system," European Journal of Operational Research, Elsevier, vol. 225(2), pages 273-284.
    14. Guan, Ruoxi & Zhao, Xiaobo, 2010. "On contracts for VMI program with continuous review (r, Q) policy," European Journal of Operational Research, Elsevier, vol. 207(2), pages 656-667, December.
    15. Biswajit Sarkar & Sharmila Saren & Mitali Sarkar & Yong Won Seo, 2016. "A Stackelberg Game Approach in an Integrated Inventory Model with Carbon-Emission and Setup Cost Reduction," Sustainability, MDPI, Open Access Journal, vol. 8(12), pages 1-23, December.
    16. repec:eee:transe:v:105:y:2017:i:c:p:60-82 is not listed on IDEAS
    17. repec:eee:tefoso:v:126:y:2018:i:c:p:41-52 is not listed on IDEAS
    18. Hua, Zhongsheng & Zhang, Xuemei & Xu, Xiaoyan, 2011. "Product design strategies in a manufacturer-retailer distribution channel," Omega, Elsevier, vol. 39(1), pages 23-32, January.
    19. Egri, Péter & Váncza, József, 2013. "A distributed coordination mechanism for supply networks with asymmetric information," European Journal of Operational Research, Elsevier, vol. 226(3), pages 452-460.
    20. Yao, Yuliang & Dong, Yan & Dresner, Martin, 2010. "Managing supply chain backorders under vendor managed inventory: An incentive approach and empirical analysis," European Journal of Operational Research, Elsevier, vol. 203(2), pages 350-359, June.
    21. Almehdawe, Eman & Mantin, Benny, 2010. "Vendor managed inventory with a capacitated manufacturer and multiple retailers: Retailer versus manufacturer leadership," International Journal of Production Economics, Elsevier, vol. 128(1), pages 292-302, November.
    22. Huynh, Candice H. & Pan, Wenting, 2015. "Operational strategies for supplier and retailer with risk preference under VMI contract," International Journal of Production Economics, Elsevier, vol. 169(C), pages 413-421.
    23. Cai, Jianhu & Zhong, Man & Shang, Jennifer & Huang, Weilai, 2017. "Coordinating VMI supply chain under yield uncertainty: Option contract, subsidy contract, and replenishment tactic," International Journal of Production Economics, Elsevier, vol. 185(C), pages 196-210.

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