Optimal pricing and order policies with B2B product returns for fashion products

We study optimal pricing and order policies in supply chain management of fashion products (e.g., a fashion apparel category) with consideration of product returns between supply chain partners (B2B). In order to study channel performance and optimal policies, two stochastic models for centralized channel and decentralized channel are, respectively, developed to handle new fashion and off-season product sales. In the centralized channel, closed-form solutions for optimal order and pricing decisions are proposed for new fashion products. Further, in a decentralized channel, the Stackelberg game model is proposed to derive the optimal Stackelberg equilibrium solution, and then a buy-back contract is designed to coordinate the channel. We also perform parameter analysis on performance of the two channel models. Numerical analysis is finally presented to validate our theoretical results and compare channel performances.     

Using System Dynamics to assess the impact of RFID technology on retail operations

The application of item-level radio frequency identification (RFID) technology in retail supply chains creates cost savings and promises large potential benefits from revenue growth. However, the economic assessment of the impact on improved store operations, labor utilization, and increased sales is still not fully explored. We propose to use System Dynamics as a structural modeling and simulation approach to integrate conventional return on investment evaluations. Building on previous research about RFID technology in retail supply chains, we developed a model based on the case exploration of a leading Italian apparel retailer. Simulations show that RFID implementations are profitable whenever they contribute to increase sales, especially when a fashion retailer is focused on clerk-assisted sales strategies. Sales growth results from the dynamic and integrated impacts of RFID technology on better inventory control, faster inventory turnover, and longer time available for store personnel to assist consumers as an effect of more efficient backroom operations.     

Streamlining inventory flows with time discounts to improve the profits of a decentralized supply chain

We consider a decentralized supply chain, whereby a supplier sells a product to a group of independent buyers, and develop a strategy for the supplier to offer an all-units price discount or cash rebate for orders that are synchronized with its replenishments. As synchronized orders can be met with inventory directly from receiving to shipping without warehousing, the proposed strategy streamlines system inventory flows to minimize inventory and, hence, the related costs. On the other hand, by increasing the replenishment interval of the supplier, the proposed strategy is able to induce buyers to order in large quantities and hence achieve the objectives of quantity discounts. We show that the proposed strategy can achieve nearly optimal (minimum) system cost, and is much more effective than the existing coordination strategies for decentralized supply chains in the literature.     

On the replenishment policy when the market demand information is lagged

We consider a situation where the most up-to-date information on the market demand and the inventory levels is not available to a replenishment decision maker in a single echelon of a supply chain. The objective of the decision maker is to minimise the sum of the inventory and the production costs. An intuitively attractive strategy under this setting might be to reduce the information time lag as much as possible by utilising information technologies such as RFID. We call this strategy the Time lag Elimination Strategy (TES). However, this course of action requires investment in information systems and will incur a running cost. We propose an alternative strategy that has similar economic consequences as the TES strategy, but it does not require new information systems. We call this strategy the Controlling Dynamics Strategy (CDS). The benefit coming from CDS is quantified and is compared to that from TES. We also quantify the benefits gained from the combined use of these two strategies. A new ordering policy is introduced that is easy to implement without any forecasting systems and can reduce the production cost significantly.     

Comparison of benefits of radio frequency identification: Implications for business strategic performance in the U.S. and Korean retailers

This study explores a model to compare the benefits of RFID technology on supply chain management by focusing on retail industry. A path model was estimated to examine structural relationships among technological infrastructure, RFID benefits, and business strategic performance in the U.S. (n = 70) and Korean samples (n = 87). Result showed that technological infrastructure was required to more improve inventory management, store operation and demand management, leading to business strategic performance. Especially, data system automation was perceived as a prerequisite for improving inventory management for both countries. Hardware/software application was significantly related to the RFID benefit of inventory management for U.S. retailers, whereas, it was related to the benefits of efficient store operation and demand management for Korean retailers. Business strategic performance was significantly determined by RFID benefit factors (e.g., inventory management and demand management) for U.S. retailers and Korean retailers. The managerial implication for business to business strategic performance in the U.S. and Korean retail industries was discussed from a retailer's perspective.     

Optimization of a vendor managed inventory supply chain with guaranteed stability and robustness

In this work we address the steady state optimization of a supply chain model that belongs to the class of vendor managed inventory, automatic pipeline, inventory and order based production control systems (VMI-APIOBPCS). The supply chain is optimized with the so-called normal vector method, which has specifically been developed for the economic optimization of uncertain dynamical systems with constraints on dynamics. We demonstrate that the normal vector method provides robust optimal points of operation for a number of scenarios. Since the method strictly distinguishes economic optimality, which is treated as the optimization objective, from dynamical requirements, which are incorporate by appropriate constraints, it provides a measure for the cost of stability and robustness as a desired side-effect.     

库存控制之供应链多目标视角下的应用研究——以工业润滑油供应链为例

供应链环境下库存控制的研究已经成为趋势,区别于常规的单目标库存控制的研究,本文以工业润滑油供应链为依托,提出了在供应链背景下考虑供应链库存成本最小化和客户平均需求满足率最大化为目标的库存控制研究思路,构建了多目标库存控制模型。最后将所建的供应链视角下多目标库存控制决策模型进行实证分析,为目标供应链上的企业做出生产、销售等决策提供依据。     

Dynamic supply chain coordination under consignment and vendor-managed inventory in retailer-centric B2B electronic markets

This study examines the dynamic performance of vertically decentralized two-echelon channel coordination for deteriorating goods under consignment and vendor-managed inventory (VMI) contracts with revenue sharing from retailer-centric business-to-business transactions in both traditional markets and electronic markets (EMs). The research presents the profit-maximization problem and devises a method for making cross-enterprise dynamic joint decisions by combining calculus with dynamic programming for a retailer-led Stackelberg supply chain under cooperative and non-cooperative game settings over a multi-period planning horizon. The applicability of the proposed model is assessed using a case study involving a highly perishable product, sliced raw fish, in a supply chain comprising a regional seafood supplier and a local store belonging to a large national retail chain. The analytical results show that, in a cooperative setting, the EM with a consigned revenue-sharing VMI contract tends to achieve lower retail prices, larger stock quantity, improved channel efficiency, and increases in both retailer and supplier profits through an additional one-part tariff. Additionally, consumers benefit from lower retail prices and society benefits from increased overall channel profits in the cooperative channel and EM.     

Coordinating a one-warehouse N-retailer distribution system under retailer-reporting

We consider a distribution system consisting of a System Administrator (SA) and N retailers managed under dynamic allocation and static routing policies. We study the system under two scenarios: (a) the up-to-date information scenario, under which the SA has access to the inventory levels at the retailers in real time and makes the replenishment and allocation decisions based on these information, aiming to minimize total supply chain cost; (b) the retailer-reporting scenario, under which the SA makes the replenishment and allocation decisions based on the information reported by the retailers. Under the retailer-reporting scenario, the retailers compete against each other by reporting their inventory levels falsely to get the desired allocations, which minimize the retailers’ expected cost. For N=2 retailers, we show that, in general, reporting truthfully does not minimize either retailer's expected cost/cycle over their respective replenishment/allocation cycles, and that the sum of the retailers' expected cost/cycle is strictly greater than in the up-to-date information scenario. We then show that by including a particular transfer-payment between the two retailers, truth-telling is a Bayesian equilibrium, and that the same system expected cost/period as in up-to-date information scenario can be achieved.     

A simple approach for assessing the cost of system nervousness

A well-known problem in coordinating supply chain inventories is that replenishment decisions are revised due to stochastic demands. This issue is often referred to as system nervousness. The literature distinguishes between two types of nervousness: setup-oriented and quantity-oriented. It is widely accepted that cost of nervousness is difficult to measure. We argue that this cost can be evaluated by means of three well-established inventory control strategies: static uncertainty, dynamic uncertainty, and static-dynamic uncertainty. These strategies reflect extreme cases with regard to the setup- and the quantity-oriented nervousness, and provide a simple yet an objective measure to assess the cost of system nervousness. Our results are of practical importance. We highlight that the setup-oriented nervousness, which is considered to be the most critical in practice, can be eliminated with a minor cost penalty. This is, however, not the case for the quantity-oriented nervousness.     

Impact of loss aversion on the newsvendor game with product substitution

This paper studies a newsvendor game in which two substitutable products are sold by two different retailers (newsvendors) with loss-averse preferences. Each loss-averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility. Since product substitution causes two retailers to make decisions in a competitive environment, game theory is used to find the retailers' optimal order quantities. It is shown that under certain conditions, there exists a unique Nash equilibrium in the newsvendor game. Under a symmetry assumption, each retailer's equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate. Further, if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition, the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain. Numerical experiments are conducted to illustrate our results.     

基于收益共享的供应链中断协调研究

本文假定市场需求不确定和供给存在中断危机，同时考虑订货过剩损失和缺货成本，研究了由零售商、主供应商和备份供应商组成的供应链网络，构建了收益共享合同协调模型，通过相关参数的设定达到供应链协调。供应链协调时的供货量及整体利润均大于分散模型；备份供应商的供货量及利润随着中断危机的增大而增加，零售商利润也随之增加。     

Evaluation of postponement in the soluble coffee supply chain: A case study

This paper, through a case study, evaluates postponement as an option to improve supply chain performances in a soluble coffee manufacturer. The main focus of the paper is on the development of a numerical data-driven methodology for quantifying the benefits of postponement obtained from the total inventory reduction. Our study shows that significant cost savings are achievable by delaying the labelling and packaging processes until actual orders from retailers are known. These savings include the reduction of the cycle stock, safety stock, and obsolete stock unsold from promotional events. We also discuss the cost implications of the proposed configuration that may offset the estimated potential benefits. The methodology presented in this paper can also be used in many other supply chains, particularly in the food industry with similar environments. This paper contributes to the literature in extending the very short list of published work presenting a systematic methodology of characterising the postponement benefits in real world settings and driven by numerical data.     

Setting operating policies for supply hubs

This paper deals with the joint management of operations at the supply hub for the customer and the upstream supplier. Different operating conditions are considered, namely, backordering, minimum and maximum specified inventory levels. Some analytical insights on better managing suppliers operating under a vendor managed inventory program are presented. Essentially, we show that the penalty cost imposed on over- and under-stocking, and the min–max policy for hub inventory reside in the power of the hub operator. The relationship between supply hub policy and performance measures is quite complex and non-linear in nature. We suggest a structured hierarchical approach which can help supply hub in achieving balance between various parties involved in chain. A numerical example and an algorithm are included to highlight this result.     

Centralized and decentralized control polices for a two-stage stochastic supply chain with subcontracting

An analysis of control policies for a two-stage supply chain with subcontractors at each stage is presented when decisions at each stage concerning safety stocks, backorders, and subcontracting are made jointly or in a decentralized manner. The inventory/admission control policies considered are base stock, echelon base stock and partial backordering, and the objective is to maximize the mean profit rate of the system. The optimal control parameters are found by exhaustive search using Markov chains. From numerical examples it appears that the policies which manage jointly sales and production levels in each stage provide much higher overall (system) profits than decentralized policies, although the latter are individually more profitable for the second stage. In addition, partial backordering provides the system with an extra profit above those that result from the lost sales (no backordering) and complete backordering policies. Finally, a number of numerical results show the impact of variations in certain system parameters on the optimal control parameters and the corresponding profit.     

供应链管理环境下的库存控制研究

研究供应链管理环境下企业库存控制方法,对于节约供应链成本、提高供应链整体效率有重要意义。本文从分析供应链管理环境下库存控制在实践中所出现的各种问题入手,阐述了供应链环境下库存控制的新特点,有针对性地提出解决问题的策略和方法。     

Competition under capacitated dynamic lot-sizing with capacity acquisition

Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot-sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies of scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions.     

On supply chain coordination for false failure returns: A quantity discount contract approach

A large proportion of consumer returns fall into the category of false failure returns, which refer to returns without functional defects. In this paper, we consider profits resulting from exerting costly effort to reduce false failure returns in a reverse supply chain. The supply chain as a whole has a strong incentive to reduce such returns for cost saving. However, retailers typically enjoy a full credit provided by suppliers for returns, so they may not have sufficient incentives to exert enough effort for supply chain profit maximization. In some scenarios retailers may even have the motivation to encourage such returns. We suggest using a coordination contract to resolve this profit conflict. We introduce a quantity discount contract which specifies a payment to the retailer with an amount exponentially decreasing in the number of returns. We present explicit forms of such contracts given different assumptions about the distribution of the number of returns. We also prove that the contract is Pareto improving. Besides, it is shown that when the contract is applied in a closed-loop supply chain, it can deter retailer's potential incentive to encourage returns. Moreover, some modifications of the contract can lead to easy allocation of supply chain profit.     

Inventory control in a two-echelon dual-channel supply chain with setup of production and delivery

This paper considers a two-echelon dual-channel supply chain model with setup of production and delivery and develops a new inventory control policy for the supply chain. Previously, a two-echelon supply chain model without setup of production and delivery is considered and a one-for-one inventory control policy is applied to the supply chain. In the inventory control policy, production is stopped when the warehouse inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. Moreover, delivery to the retailer is stopped when the store inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. The total cost that consists of inventory holding costs and lost sales cost is considered, and setup costs are not considered in the total cost. Once setup costs are introduced, the one-for-one inventory control policy is no longer appropriate. Then, this paper develops a new control policy for the two-echelon dual-channel supply chain with setup of production and delivery. As performance measure, the total cost that consists of inventory holding costs, lost sales cost, and production and delivery setup costs is considered, and the total cost calculated on the basis of Markov analysis demonstrates the effectiveness of the proposed control policy.