Supply Chain Optimization And Coordination For Perishable Products

With the rapid improvement of technology, fierce competition in the market and the fast-changing preferences of consumers, product lifecycles has become much shorter than ever before and new product development has accelerated significantly. Consequently, more and more products can be classified as perishable items. Since the1990s, a great deal of research has been made on supply chain coordination and significant theoretical progress has been made in the area. However, existing research in the area does not meet the needs of supporting modern businesses in their decision making. This thesis is aimed to investigate challenging issues related to supply chain optimization and coordination from the angles of operation and marketing in both static and dynamic market environments. The major originalities of the thesis are displayed as follows.(1) Retailer’s quality inspection effort is introduced into a supply chain model for static perishable products. The combined effect of quality control efforts by both manufacturer and retailer on market demand is studied, which extends the scope of the application of the model. The existing research for the supply chain of static perishable products only considers product quality control from the angle of manufacturer without taking into account the effect of quality control effort of retailer on market demand. It is found that the quality control efforts of both manufacturer and retailer have positive effect on market demand, and the variation of market demand affects the quality choice of manufacturer and retailer. Consequently, under the fast changing market, how to select appropriate quality control effort levels for both manufacturer and retailer is very important for coordination among supply chain members. In view of the above reasons, this thesis studies product quality control problem in supply chain under a stochastic market. A supply chain coordination model with demand depending on manufacturer’s quality control efforts and retailer’s quality inspection efforts is developed. The effect of quality control efforts of manufacturer and retailer on order quantity is analyzed. The optimal quality control efforts of manufacturer, the optimal quality inspection efforts of retailer and the optimal order quantity of retailer are given under decentralized and centralized decision systems, respectively. A revenue sharing contract is proposed to achieve the optimal coordination of supply chain. From the analysis it is found that the higher the manufacturer’s quality control effort level and the retailer’s quality inspection effort level, the larger the order quantity of the retailer; the higher the retailer’s quality inspection effort level, the smaller the wholesale price of the manufacturer; the higher the manufacturer’s quality control effort level, however, the larger the wholesale price of the manufacturer.(2) It is the first time that the end-of-season twice-ordering policy with pre-season twice-ordering policy is integrated in this thesis. Under the assumption that manufacturer utilizes two production modes in response to buyer’s two different orders, a supply chain coordination model is developed with joint decision on both demand information updating time point and end-of-season emergency ordering quantity. In the literature, it is assumed that if there are still unsatisfied demands from customers at the end of a season, the unfilled demands will be lost. In reality, however, when a product is out of stock at the end of a season, due to the brand, reputation and after-sales service of the retailer, a group of customers may be willing to wait for backlogging, while others may either give up purchasing the product, or buy the same or similar product from other retailers. The retailer can place an order at once by adopting an emergency ordering mode and the manufacturer can response to the retailer’s order by employing an expensive production mode. In light of the above discussion, a supply chain coordination model is developed in this thesis. We discuss how to design multiple contracts to achieve the channel coordination. The analysis based on this model shows that as the backlogging rate increases,(i) the retailer moves the updating moment forward and at the same time decreases her first order quantity, and the manufacturer also decreases its first production quantity accordingly;(ii) the difference of the expected profit between the decentralized and centralized systems is gettngn smaller, which indicates that the shortage backlogging can effectively eliminate the double marginalization. The more the backlogging quantity is, the less the double marginalization effect.(3) The advertising investment decision is incorporated into supply chain for perishable products under dynamic market, which integrates operations management with marketing and enriches theoretic research in supply chain for perishable products. Although the issue of supply chain coordination for perishable products either under dynamic market or with advertising investment under static market has been saparately investigated in the literature, there has been little research in investigating the two issues together. This may be because the presence of advertising in two periods changes inventory control significantly since it adds two new decision variables in a decision making process. In practice, however, many retailers, such as Suning Appliance and Gome Appliance, often resort to advertisement to enhance their brand images and increase their market shares. Consequently, incorporating advertisement into supply chain coordination under dynamic market is not only of important theoretic value but also of great practical value. In view of this gap in the literature, there are three new main contributions in this paper. Firstly, the optimal two-period ordering and advertising models for perishable products with a dynamic market environment under both centralized and decentralized decision systems are developed respectively. Secondly, a two-period revenue-sharing contract is designed to achieve the channel coordination and win-win outcome. Thirdly, we explore the effect of different coefficients of variation (CV) of demand on the ordering and advertising policies and channel performance and attempt to characterize environments under which coordination is more valuable for the channel.(4) False failure return is first introduced into supply chain management with dynamic perishable products in the thesis. Existing research in supply chain with dynamic perishable products does not take account of the situation where customers may return their purchased products that may not necessarily be defect. In recent years, electronic commerce has been develping rapidly, and many large retailers, such as Wal-Mart, Carrefour and Suning Appliance, have opened online stores. A distinctive feature of online sales is that customers’return rate is high, and a returned product is generally the same in quality as a new one and can be resold directly after testing and repackaging. Such returns are called false failure returns. Since the false failure returns can be taken as a secondary supply channel to satisfy demand, how to make appropriate operation and marketing policies is thus a difficult problem to online retailers. Based on the phenomenon of false failure returns in online sales, the optimal ordering and pricing coordination issue for perishable product is studied in this thesis. Following a two-period newsvendor framework, two members’optimal two-ordering/pricing models have been developed under both the centralized and decentralized settings in terms of two resale modes:single-resale-opportunity mode and multiple-resale-opportunity mode, respectively. A contract is proposed to realize the supply chain coordination. The analysis is conducted using these models, leading to the following insight (i) An online retailer needs to order more products in the first period in response to demand risk when demand variability increases, thus leading to a lower profit for the whole chain. Moreover, coordination is more valuable when demand variability is higher,(ii) As either the return rate of the first period increases or the return rate of the second period increases, or both, the first-period and second-period order quantities will decrease,(iii) A smaller customer return or a larger serviceable return rate is more valuable for the channel when demand variability is higher.(5) The correlated demands in two periods and fixed ordering cost are first introduced into the supply chain with dynamic perishable products. Existing models are based on the following three assumptions. The first assumption is that random demands between two periods are mutually independent. The second assumption is that the ordering cost of retailer is negligible. The third assumption is that all excess demand in the first period is lost. By relaxing the above three assumptions, this dissertation proposes a general and practical two-period newsvendor model. The novelty of the model is that (i) the correlation of demands is incorporated into this dynamic, two-period model,(ii) the fixed ordering cost of retailer is taken into account, and (iii) unfilled demand is allowed before the second order is partially backordered. Theoretically, it is much more difficult to find the closed-form solution for the two-period newsvendor model under the (s, S) type policy than under the S-type policy. It is proven in this thesis that there exists a unique optimal solution to the model, and an analytical solution algorithm is proposed. Finally, the effects of demand variability, demand correlation, partial backlogging rate, and fixed ordering costs on the optimal ordering policies of the centralized and decentralized systems are investigated together with coordination contract. Based on the analysis of the model and the results of numerical experiments, useful management insight is generated.The above research results not only enrich the supply chain coordination theory for perishable products but also widen the application range of the traditional supply chain models, and provide scientific evidence for decision makers in supply chain management.