Ship-to-order supplies: Contract breachability and the impact of a manufacturer-owned direct channel
We address the issue of contract breachability in a supply chain involving a retailer and a manufacturer operating under ship-to-order contract terms and stochastic demands. The manufacturer is required to fulfill the retailer’s demands on a continuous basis with little or no advance notice. The issue in such an environment is whether the retailer can “naively” assume that she will get a very high fill rate from the manufacturer and therefore has no need for contract penalties in case the manufacturer’s inventory falls short. We suggest a stochastic calculus framework to study the problem and derive a condition when the retailer’s naïve assumption is justified since the probability of stock-outs of the manufacturer is negligible. That is, the ship-to-order contract will not be breached and the fill rate will be more than a predetermined threshold. Furthermore we find that although the manufacturer-owned direct channel generates more revenue and may reduce the volatility of both inventory and production orders, the ratio between expected direct channel and retail sales affects the benefits.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yossi Aviv, 2007. "On the Benefits of Collaborative Forecasting Partnerships Between Retailers and Manufacturers," Management Science, INFORMS, vol. 53(5), pages 777-794, May.
- Gérard P. Cachon & Taylor Randall & Glen M. Schmidt, 2007. "In Search of the Bullwhip Effect," Manufacturing & Service Operations Management, INFORMS, vol. 9(4), pages 457-479, April.
- Kogan, Konstantin & Herbon, Avi, 2008. "A supply chain under limited-time promotion: The effect of customer sensitivity," European Journal of Operational Research, Elsevier, vol. 188(1), pages 273-292, July.
- Chang,Fwu-Ranq, 2004.
"Stochastic Optimization in Continuous Time,"
Cambridge University Press, number 9780521834063.
- Stephen C. Graves, 1985. "A Multi-Echelon Inventory Model for a Repairable Item with One-for-One Replenishment," Management Science, INFORMS, vol. 31(10), pages 1247-1256, October.
- Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
- Desai, Vijay S., 1996. "Interactions between members of a marketing-production channel under seasonal demand," European Journal of Operational Research, Elsevier, vol. 90(1), pages 115-141, April.
- Haurie, A., 1995. "Time scale decomposition in production planning for unreliable flexible manufacturing systems," European Journal of Operational Research, Elsevier, vol. 82(2), pages 339-358, April.
- Jehoshua Eliashberg & Richard Steinberg, 1987. "Marketing-Production Decisions in an Industrial Channel of Distribution," Management Science, INFORMS, vol. 33(8), pages 981-1000, August.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:218:y:2012:i:1:p:113-123. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.