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Coordinating price and service level decisions for a supply chain with deteriorating item under vendor managed inventory

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  • Xiao, Tiaojun
  • Xu, Tiantian

Abstract

This paper develops a Stackelberg game model of a one-supplier and one-retailer supply chain with deteriorating product to investigate how to coordinate the price and service level decisions under vendor-managed inventory (VMI) and examine system efficiency. We study the equilibrium price and service level decisions under the decentralized setting and the centralized setting, respectively; and design a generalized revenue-sharing mechanism to coordinate the supply chain. We find that the interaction between the retail price and the service level may invert the effect of deterioration rate on the retail price. The system efficiency of decentralized supply chain increases with market scale, price sensitivity, deterioration rate, the supplier's cost (including unit production cost, holding cost, and deterioration cost), and service investment efficiency, while decreases with production rate. In addition, we find that VMI may invert the effect of deterioration rate on the unit wholesale price of the decentralized supply chain; in the coordinated setting, the retailer should pay a higher transfer price to the supplier with VMI than that without VMI, the transfer price decreases with service investment efficiency, and higher service investment efficiency shrinks the transfer price difference.

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  • Xiao, Tiaojun & Xu, Tiantian, 2013. "Coordinating price and service level decisions for a supply chain with deteriorating item under vendor managed inventory," International Journal of Production Economics, Elsevier, vol. 145(2), pages 743-752.
    • Handle: RePEc:eee:proeco:v:145:y:2013:i:2:p:743-752
    DOI: 10.1016/j.ijpe.2013.06.004
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    9. Maihami, Reza & Govindan, Kannan & Fattahi, Mohammad, 2019. "The inventory and pricing decisions in a three-echelon supply chain of deteriorating items under probabilistic environment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 118-138.
    10. Zhang, Jianxiong & Liu, Guowei & Zhang, Qiao & Bai, Zhenyu, 2015. "Coordinating a supply chain for deteriorating items with a revenue sharing and cooperative investment contract," Omega, Elsevier, vol. 56(C), pages 37-49.
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    16. Rabbani, Masoud & Pourmohammad Zia, Nadia & Rafiei, Hamed, 2016. "Joint optimal dynamic pricing and replenishment policies for items with simultaneous quality and physical quantity deterioration," Applied Mathematics and Computation, Elsevier, vol. 287, pages 149-160.
    17. Rini & Priyamvada & Chandra K. Jaggi, 2021. "Sustainable and flexible production system for a deteriorating item with quality consideration," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 12(5), pages 951-960, October.
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    19. Seyed Jafar Sadjadi & Hashem Asadi & Ramin Sadeghian & Hadi Sahebi, 2018. "Retailer Stackelberg game in a supply chain with pricing and service decisions and simple price discount contract," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-24, April.
    20. Jifeng Cao & Cheng Ma, 2022. "Procurement Strategies and Auction Mechanism for Heterogeneous Service Providers in a Service Supply Chain," Sustainability, MDPI, vol. 14(15), pages 1-36, July.
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    24. Ke Ma & Sébastien Thomassey & Xianyi Zeng, 2020. "Development of a central order processing system for optimizing demand-driven textile supply chains: a real case based simulation study," Annals of Operations Research, Springer, vol. 291(1), pages 627-656, August.

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