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Individually rational buyback contracts with inventory level dependent demand

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  • Devangan, Lokendra
  • Amit, R.K.
  • Mehta, Peeyush
  • Swami, Sanjeev
  • Shanker, Kripa

Abstract

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.

Suggested Citation

  • Devangan, Lokendra & Amit, R.K. & Mehta, Peeyush & Swami, Sanjeev & Shanker, Kripa, 2013. "Individually rational buyback contracts with inventory level dependent demand," International Journal of Production Economics, Elsevier, vol. 142(2), pages 381-387.
  • Handle: RePEc:eee:proeco:v:142:y:2013:i:2:p:381-387
    DOI: 10.1016/j.ijpe.2012.12.014
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Avinadav, Tal & Herbon, Avi & Spiegel, Uriel, 2013. "Optimal inventory policy for a perishable item with demand function sensitive to price and time," International Journal of Production Economics, Elsevier, vol. 144(2), pages 497-506.
    2. Amit, R.K. & Mehta, Peeyush & Tripathi, Rajeev R., 2015. "Optimal shelf-space stocking policy using stochastic dominance under supply-driven demand uncertainty," European Journal of Operational Research, Elsevier, vol. 246(1), pages 339-342.
    3. Herbon, Avi & Khmelnitsky, Eugene, 2017. "Optimal dynamic pricing and ordering of a perishable product under additive effects of price and time on demand," European Journal of Operational Research, Elsevier, vol. 260(2), pages 546-556.

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