How a novel option contract helps a green product to enter a traditional product's retailing channel: A mathematical modeling approach |
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| Institution: | 1. Marketing, Indian Institute of Management Calcutta, India;2. Marketing, Department of Strategy and Management, NHH Norwegian School of Economics, Bergen, Norway;3. Digital Innovation for Growth (DIG), NHH Norwegian School of Economics, Bergen, Norway;4. Marketing, Indian Institute of Management, Ahmedabad, India;1. Department of Industrial Engineering and Management, National Taipei University of Technology, Taipei, Taiwan, ROC;2. Institute of Technology Management, National Tsing Hua University, Hsinchu, Taiwan, ROC;3. Department of Information Management, National Central University, Jhongli City, Taiwan, ROC;4. Institute of Technology Management, National Tsing Hua University, Hsinchu, Taiwan, ROC;1. Associate Professor of Marketing, Penn State Harrisburg, School of Business Administration, 777 West Harrisburg Pike, Middletown, PA, 17057-4898, USA;2. SVP Client Strategy & Development, CitrusAd, Harrisburg, PA, USA;1. Institute of Business Studies, Kohat University of Science & Technology, Pakistan;2. Department of Management Sciences, COMSATS University Islamabad, Wah Campus, Wah Cantt, Pakistan;3. Institute of Business Studies, Kohat University of Science & Technology, Kohat, Pakistan;4. Institute of Business and Management Sciences, UOA, Peshawar, Pakistan;5. College of Hospitality and Tourism Management, Sejong University, Seoul, 05006, South Korea;6. Social Matters Research Group, Universidad Loyola Andalucía, C/ Escritor Castilla Aguayo, 4, 14004 Córdoba, Spain;1. Business School, Foshan University, Foshan 528000, China;2. The School of Hospitality Business, Broad College of Business, Michigan State University, 667 N. Shaw Lane, East Lansing, MI 48824, USA;3. Business School, Guangdong University of Foreign Studies, China;4. Shenzhen Tourism College, Jinan University, No.6 EAST OCT Road, Nanshan District, Shenzhen, 518053, China |
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| Abstract: | Multi-sourcing is a practical strategy in retail channels that allows retailers facing uncertainties to respond more effectively to consumers' needs by distributing market demand across multiple supply sources. In this respect, this research investigates a price-setting retailing channel, including two manufacturers (a traditional manufacturer and a green manufacturer) and one retailer where end-of-life products can be collected. The retailer faces an uncertain price-dependent demand and sets orders from both supply directions based on a low-cost ordering approach. The primary purpose of this study is to develop an optimal solution to allow the green product to enter the retailing channel of the non-green product. Accordingly, this research develops and compares two different contractual mechanisms from the standpoint of the green manufacturer/retailer and the supply chain (SC): (1) a penalty-based contract and (2) a modified call option contract mixed with a cost-sharing mechanism. The main contribution of the current paper is to investigate an option contract for the effective management of a closed-loop supply chain and combine it with a cost-sharing contract as a new approach. Another contribution is that the developed model considers two practical channels for collecting and returning obsolete products to the green manufacturer: (1) the retailer is responsible for collecting and returning obsolete products, and (2) collecting and returning obsolete products is outsourced to a third-party logistics provider (3PL). Eventually, the models' efficiency is verified by investigating different numerical experiments, discovering that the proposed reservation-based contract outperforms the penalty-based contract for both parties' profitability and retailing channel's improvement. Besides, the present study finds that hiring 3PL significantly increases the green manufacturer's profit compared to other scenarios. |
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| Keywords: | Green supply chain Channel coordination Call option contract Third-party logistics |
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