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Incentives to reliable order fulfillment for an Internet drop-shipping supply chain

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  • Yao, Dong-Qing
  • Kurata, Hisashi
  • Mukhopadhyay, Samar K.

Abstract

In this paper, we analyze the interaction between revenue sharing and quality of order fulfillment that occurs in an Internet drop-shipping distribution system comprising an e-tailer and a supplier. The e-tailer manages sales activities and sends customer orders to the supplier, while the supplier fulfills the order. With drop-shipping strategy, the e-tailer cannot monitor or control the supplier's shipping operations and takes the risk of loss due to the supplier's inefficient deliveries. Using a Stackelberg game, we explore how the e-tailer (leader) can give the supplier (follower) appropriate incentive to improve the level of delivery reliability. We also address whether and when the supplier is willing to share its private cost information with the e-tailer. Since the e-tailer is always better off by knowing the supplier's private information, we study three possible strategies for the e-tailer to extract more accurate cost information from the supplier. Among them, we find that strategic partnership and utilization of information leakage are feasible strategies while a side payment is not.

Suggested Citation

  • Yao, Dong-Qing & Kurata, Hisashi & Mukhopadhyay, Samar K., 2008. "Incentives to reliable order fulfillment for an Internet drop-shipping supply chain," International Journal of Production Economics, Elsevier, vol. 113(1), pages 324-334, May.
    • Handle: RePEc:eee:proeco:v:113:y:2008:i:1:p:324-334
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    Cited by:

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    2. Matsui, Kenji, 2021. "Buyer’s strategic demand information sharing with an upstream echelon for entry promotion," International Journal of Production Economics, Elsevier, vol. 242(C).
    3. Yu, Dennis Z. & Cheong, Taesu & Sun, Daewon, 2017. "Impact of supply chain power and drop-shipping on a manufacturer’s optimal distribution channel strategy," European Journal of Operational Research, Elsevier, vol. 259(2), pages 554-563.
    4. Leonard Calin ABRUDAN & Mirabela Constanta MATEI & Maria Madela ABRUDAN, 2018. "Running A Business Through A Sharing Responsibilities (And Profits) Strategy," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 12(1), pages 28-38, November.
    5. Li-Chih Wang & Chen-Yang Cheng & Wen-Kuan Wang, 2016. "Flexible supply network planning for hybrid shipment: a case study of memory module industry," International Journal of Production Research, Taylor & Francis Journals, vol. 54(2), pages 444-458, January.
    6. Shi, Siyu & Sun, Jingchun & Cheng, T.C.E., 2020. "Wholesale or drop-shipping: Contract choices of the online retailer and the manufacturer in a dual-channel supply chain," International Journal of Production Economics, Elsevier, vol. 226(C).
    7. Barcs, Cristian & Pop, Izabela Luiza & Toader, Cezar & Ighian, Diana, 2022. "Drop-Shipping – A Business Model Without Holding Inventory: A Case Study of Online Store," MPRA Paper 118638, University Library of Munich, Germany.
    8. Ryu, Seung-Jin & Tsukishima, Takahiro & Onari, Hisashi, 2009. "A study on evaluation of demand information-sharing methods in supply chain," International Journal of Production Economics, Elsevier, vol. 120(1), pages 162-175, July.
    9. T. M. Rofin & Biswajit Mahanty, 2021. "Fulfillment mode selection for Indian online sellers under free and flat rate shipping policies," Electronic Commerce Research, Springer, vol. 21(2), pages 263-296, June.
    10. Changkyu Park, 2017. "A Partial Backordering Inventory Model with a Drop-Shipping Option Under Purchase Dependence," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(04), pages 1-20, August.
    11. Guo Li & Hong Zheng & Mengqi Liu, 2020. "Reselling or drop shipping: Strategic analysis of E-commerce dual-channel structures," Electronic Commerce Research, Springer, vol. 20(3), pages 475-508, September.
    12. Mukhopadhyay, Samar K. & Yue, Xiaohang & Zhu, Xiaowei, 2011. "A Stackelberg model of pricing of complementary goods under information asymmetry," International Journal of Production Economics, Elsevier, vol. 134(2), pages 424-433, December.

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