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Coordinating a three level supply chain with flexible return policies

  • Ding, Ding
  • Chen, Jian
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    This paper studies the coordination issue of a three level supply chain selling short life cycle products in a single period model. The manufacturer first negotiates the trade contract with the retailer, then with the supplier. We construct the so-called flexible return policy by setting the rules of pricing while postponing the determination of the final contract prices. With return policies between each pair of adjacent firms, unsold products or used modules dissembled from the unsold products are returned level by level from the retailer to the upstream firms and each firm shares in the loss due to the overstock. We show that the three level supply chain can be fully coordinated with appropriate contracts and the total profit of the channel can be allocated with any specified ratios among the firms.

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    Article provided by Elsevier in its journal Omega.

    Volume (Year): 36 (2008)
    Issue (Month): 5 (October)
    Pages: 865-876

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    Handle: RePEc:eee:jomega:v:36:y:2008:i:5:p:865-876
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    1. Dawn Barnes-Schuster & Yehuda Bassok & Ravi Anupindi, 2002. "Coordination and Flexibility in Supply Contracts with Options," Manufacturing & Service Operations Management, INFORMS, vol. 4(3), pages 171-207, May.
    2. Gary D. Eppen & Ananth. V. Iyer, 1997. "Backup Agreements in Fashion Buying---The Value of Upstream Flexibility," Management Science, INFORMS, vol. 43(11), pages 1469-1484, November.
    3. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    4. A. A. Tsay & W. S. Lovejoy, 1999. "Quantity Flexibility Contracts and Supply Chain Performance," Manufacturing & Service Operations Management, INFORMS, vol. 1(2), pages 89-111.
    5. Mantrala, Murali K. & Raman, Kalyan, 1999. "Demand uncertainty and supplier's returns policies for a multi-store style-good retailer," European Journal of Operational Research, Elsevier, vol. 115(2), pages 270-284, June.
    6. Hamilton Emmons & Stephen M. Gilbert, 1998. "Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods," Management Science, INFORMS, vol. 44(2), pages 276-283, February.
    7. GĂ©rard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
    8. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
    9. Terry A. Taylor, 2002. "Supply Chain Coordination Under Channel Rebates with Sales Effort Effects," Management Science, INFORMS, vol. 48(8), pages 992-1007, August.
    10. Lee, Chang Hwan, 2001. "Coordinated stocking, clearance sales, and return policies for a supply chain," European Journal of Operational Research, Elsevier, vol. 131(3), pages 491-513, June.
    11. Z. Kevin Weng, 1995. "Channel Coordination and Quantity Discounts," Management Science, INFORMS, vol. 41(9), pages 1509-1522, September.
    12. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
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