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Individually rational buyback contracts with inventory level dependent demand

Listed author(s):
  • Devangan, Lokendra
  • Amit, R.K.
  • Mehta, Peeyush
  • Swami, Sanjeev
  • Shanker, Kripa
Registered author(s):

    In this paper, we consider a supply chain coordination problem when demand faced by a retailer is influenced by the amount of inventory displayed on the retail shelf. We assume that shelf space inventory is used as one of the levers to stimulate demand. Our objective in this research is to design individually rational contracts that coordinate the supply chain when the retailer faces inventory-level-dependent demand. We consider a buyback contract where any leftover inventory at the retailer can be returned to the supplier at a pre-specified terms of the buyback contract. The existing buyback contracts in the supply chain coordination literature do not guarantee the satisfaction of individual rationality constraint. A continuum of buyback contracts coordinate the supply chain. The contracts may differ on the basis of division of profits resulting in contracts that may not be individually rational. This motivates us to use the Shapley value from the cooperative game theory which ensures fairness and individual rationality in the buyback contract. We also provide managerial insights into the design of the contracts and analyze the impact of shelf space inventory on the contract parameters.

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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 142 (2013)
    Issue (Month): 2 ()
    Pages: 381-387

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    Handle: RePEc:eee:proeco:v:142:y:2013:i:2:p:381-387
    DOI: 10.1016/j.ijpe.2012.12.014
    Contact details of provider: Web page:

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    1. Yuyue Song & Saibal Ray & Shanling Li, 2008. "Structural Properties of Buyback Contracts for Price-Setting Newsvendors," Manufacturing & Service Operations Management, INFORMS, vol. 10(1), pages 1-18, November.
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    13. Andy A. Tsay, 1999. "The Quantity Flexibility Contract and Supplier-Customer Incentives," Management Science, INFORMS, vol. 45(10), pages 1339-1358, October.
    14. Urban, Timothy L., 2005. "Inventory models with inventory-level-dependent demand: A comprehensive review and unifying theory," European Journal of Operational Research, Elsevier, vol. 162(3), pages 792-804, May.
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    17. Lian, Zhaotong & Deshmukh, Abhijit, 2009. "Analysis of supply contracts with quantity flexibility," European Journal of Operational Research, Elsevier, vol. 196(2), pages 526-533, July.
    18. Anantaram Balakrishnan & Michael S. Pangburn & Euthemia Stavrulaki, 2008. "Integrating the Promotional and Service Roles of Retail Inventories," Manufacturing & Service Operations Management, INFORMS, vol. 10(2), pages 218-235, July.
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