Buyback contracts to solve upstream opportunism

Doğanoğlu, Toker; Inceoglu, Firat

doi:10.1016/j.ejor.2020.05.021

Cited by 17 publications

(11 citation statements)

References 25 publications

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“…This research contributes to the literature on supply chain coordination. The previous literature in supply chain coordination has largely focused on operational decisions and constraints, such as prices and stocking levels, and ignored the role played by capital constraints (Adida & Ratisoontorn, 2011; Cachon & Kök, 2010; Cachon & Lariviere, 2005; Choi & Guo, 2020; Doganoglu & Inceoglu, 2020; Hwan Lee & Rhee, 2010; Özer et al, 2011). Our research differs from previous studies by extending the idea of coordination to a three-level supply chain financing problem (lenders, retailers, and manufacturers).…”

Section: Discussionmentioning

confidence: 99%

“…To reduce this type of supply chain inefficiency, there are extensive studies in the literature proposing diverse coordinating mechanisms to align actions of each party in the chain to achieve better overall performance. The most extensively discussed coordination contracts include wholesale-price contracts (Chen, 2011; Choi & Guo, 2020; Özer et al, 2011), Two-part tariff contracts (Bonnet & Dubois, 2010; Cachon & Kök, 2010), revenue sharing contracts (Adida & Ratisoontorn, 2011; Cachon & Lariviere, 2005), buyback contracts (Doganoglu & Inceoglu, 2020; Hwan Lee & Rhee, 2010; Pasternack, 1985), quantity discount contracts (Chen, 2011; Su & Mukhopadhyay, 2012), and rebate induced contracts (Saha, 2013). For a comprehensive review of studies in coordination contracts in a stylized two-level supply chain, please refer to Cachon (2003) and Govindan et al (2013).…”

Section: Literature Reviewmentioning

confidence: 99%

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Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract

Zhang

Kuo

et al. 2021

Sage Open

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This paper considers an online retailer and his or her manufacturer, both facing financial constraints and wishing to get loans from their e-commerce platform-backed finance company. Based on shared transaction data and monitored sales accounts, a tripartite loan contract is proposed to coordinate three parties’ actions in this supply chain financing problem. We prove that the proposed loan contract aligns the decentralized decision-makings of each party and duplicates the optimal channel performance under a fully integrated decision-making framework. A case study is then conducted to illustrate the performance of the proposed loan contract. The result shows that the proposed loan contract outperforms wholesale-price contracts, where coordination does not take place, and buyback contracts, where coordination happens between the retailer and the manufacturer only. Furthermore, a sensitivity analysis reveals that profit allocations among the lender, the retailer, and the manufacturer resulted from the proposed loan contract are more balanced when the cost-to-retail ratio or risk premium is high.

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Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract

Zhang

Kuo

et al. 2021

Sage Open

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“…The optimal inventory level for period 1 is F −1 1 l h+l and the optimal inventory level for period 2 is F −1 2 r+l−w r+l+h−b . Using these results, the expected total profit for the retailer can be obtained as shown in Equation (5).…”

Section: Decentralized Systemmentioning

confidence: 99%

“…The manufacturer can maximize its expected profit only if the expected profit of the supply chain is maximized. Doganoglu and Inceoglu considered two different industry structures, first with a vertically integrated manufacturer and an independent retailer, second with an upstream only manufacturer and two competing retailers, to provide an additional reason for the prevalence of buyback provisions in wholesale contracts [5]. They show that a buyback contract in this respect has a function similar to insurance for the retailers; then, this feature may enable the manufacturer to obtain maximum industry profits.…”

Section: Introductionmentioning

confidence: 99%

Effect of Additional Order in Two-Stage Supply Chain Contract under the Demand Uncertainty

Chueanun

Suwandechochai

2021

Computation

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In this work, mathematical models are formulated in order to investigate the effect of the additional order on the expected total profit of a two-stage supply chain. A multi-period buyback contract between a supplier and a retailer under the demand uncertainty is considered. Under the contract, an advance order is submitted to the supplier in advance when the demand is unknown, and an additional order can be made at the beginning of each period after the previous period demand is realized. The impact of the coordination on the supply chain’s expected total profit is also considered. The results show that the additional order does not always increases the supply chain profit. The additional order increases the supply chain profit only when both the retailer and supplier are coordinated. Under the decentralized system with the buyback contract, the retailer tends to order less in an advance order to reduce the risk. This leads to the higher cost due the additional order after the demand is realized. As a result, it is lowers the supply chain profit. Moreover, the sensitivity analysis is performed using numerical studies in order to observe the behavior of the expected total profit of the supply chain.

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“…For such supply chains, Lariviere and Cachon (2005) further establish the equivalence of buyback contracts and revenue sharing contracts. In addition, buyback contracts (sometimes, in conjunction with other contracts) are able to coordinate many different supply chains beyond dyadic supply chains with price‐dependent/independent demand, for example, two‐echelon supply chains with a single supplier serving several (competing) retailers (Bernstein & Federgruen, 2005; Zhao, 2008), three‐echelon supply chains with unreliable supply (He & Zhao, 2012), and dual channel supply chains (Doganoglu & Inceoglu, 2020).…”

Section: Introductionmentioning

confidence: 99%

Buyback and price postponement in a decentralized supply chain with additive and price‐dependent demand

Shang¹,

Zhou

2022

Naval Research Logistics

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We examine buyback contracts in a dyadic supply chain where a retailer orders from a supplier before observing the random demand and sets a retail price after observing it (a.k.a. price postponement). We focus on the case with linear additive demand, which is well known to be less tractable than the case with linear multiplicative demand. With mild conditions on the distribution of demand uncertainty, we derive the supplier's optimal buyback contract and show the following results. The supplier strictly prefers buyback contracts to wholesale price-only contracts if and only if the unit production cost is lower than a threshold that depends on the dispersion of demand uncertainty; the optimal buyback rate is decreasing in the unit production cost; the profit allocation within the supply chain and channel efficiency depend on the dispersion of demand uncertainty. These results are in stark contrast to those in the case with linear multiplicative demand. Nevertheless, the relation between the operational decisions under the optimal buyback contract and those under the optimal wholesale price-only contract is consistent with the case of multiplicative demand. We further extend the analysis to two related scenarios. On one hand, our results continue to hold in a supply chain where one supplier sells to two competing retailers. On the other hand, when the retailer does not postpone retail pricing decisions, we establish three distinctive properties of the optimal buyback contract: the supplier strictly prefers buyback contracts to wholesale price-only contracts if and only if the unit production cost is intermediate; the optimal buyback rate is increasing in the unit production cost in the region where the supplier strictly prefers buyback contracts to wholesale price-only contracts; price postponement benefits both the retailer and the supply chain but does not always benefit the supplier. The above analysis shows that the supplier's preference between buyback and wholesale price-only contracts can swing either way when the retailer starts to practice price postponement.

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Buyback contracts to solve upstream opportunism

Cited by 17 publications

References 25 publications

Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract

Coordinating Supply Chain Financing for E-commerce Companies Through a Loan Contract

Effect of Additional Order in Two-Stage Supply Chain Contract under the Demand Uncertainty

Buyback and price postponement in a decentralized supply chain with additive and price‐dependent demand

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