Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort

Krishnan, Harish; Kapuściński, Roman; Butz, David A.

doi:10.1287/mnsc.50.1.48.27052

Cited by 105 publications

(129 citation statements)

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“…In addition, the retailer may exert marketing effort such as advertising, promotional displays, and consumer incentives (free gifts, direct mail service, etc.) to induce greater consumer demand (Krishnan et al 2004). The objective of our research is to address two fundamental questions in such a retail setting.…”

Section: Introductionmentioning

confidence: 99%

Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions

Liu

Zhang

2010

M&SOM

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T his paper studies the impact of supply reliability on a retail firm's performance under joint marketing and inventory decisions. The firm sells a product in a single selling season and can exert marketing effort to influence consumer demand. We develop a modeling framework to quantify the value of improving supply reliability and investigate how this value depends on different model parameters. Our results provide useful insights into how firms should make investment decisions on adopting new technologies to improve supply reliability. First, we establish a necessary and sufficient condition under which the maximum unit cost a firm is willing to pay to improve supply reliability increases in product price. We further show that this condition would hold in most practical situations. Thus, with some caveats, our result supports the intuition that a firm is willing to pay more to improve supply reliability for products with a higher price. Next, we show that for two products with the same price, a firm is willing to pay more to improve supply reliability for the product with a higher product cost. This implies that it is not necessarily true that emerging technologies for improving supply reliability should be first adopted for products with the highest unit contribution margin. Finally, we show that a product with a lower marketing cost function always benefits more from improved supply reliability than a product with a higher marketing cost function. This finding suggests that the priority of adopting new technologies should be given to situations where the firm can effectively induce greater demand through promotional effort.

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Section: Introductionmentioning

confidence: 99%

Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions

Liu

Zhang

2010

M&SOM

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“…Pasternack [7] was the first one to study using the return policy to coordinate supply chains. Later, Krishnan et al [8] examine channel coordination with the return policy in supply chains when the market demand is affected by promotional sales effort. They find that the single return policy is not able to achieve supply chain coordination with promotional sales effort.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Given that model, they show the total reverse logistics costs can be reduced by more than 49%. Krishnan et al [8] examine the return policy in supply chains without the cost of physical return. Because they assume if the cost of physical return is extremely expensive, then the supplier might verify the amount of unsold inventory on the retailer side and pay the retailer a per-unit payment for unsold inventory.…”

Section: Literature Reviewmentioning

confidence: 99%

Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis

Shen

2015

Sustainability

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Abstract:Retail outsourcing with a return policy is quite commonly adopted in the fashion supply chain. Under the return policy, the supplier as a brand owner may focus on production, and then outsource retailing to the retailer. In the meanwhile, the retailer may receive some support money from the supplier for subsidizing the loss of unsold products at the end of the selling season and be asked for shipping back. Motivated by this real practice in the fashion industry, we examine a two-echelon supply chain with one supplier and one retailer under the return policy. Several interesting findings are obtained from our analysis. First, we find that when the supply chain achieves channel coordination, the cost of physical return is at least partially borne by the supplier, no matter who is responsible for it in reality. Second, we find that the cost of physical return is significantly affecting the sustainability factors such as the expected amount leftover (which represents environmental friendliness), the expected sales to expected goods leftover ratio (which implies both environmental friendliness and economic sustainability), and the rate of return on investment (which indicates economic sustainability). Third, from a sustainability perspective, we find that the pure wholesale price contract is more sustainable than the coordinating return policy. A numerical study by the real company data is conducted and managerial insights from analysis are discussed.

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“…Rebate contracts have been shown to be an effective instrument for the manufacturer in settings with endogenous retail pricing (Aydin and Porteus 2008) and in settings with endogenous retailer sales effort (Taylor 2002 andKrishnan et al 2004).…”

Section: Literaturementioning

confidence: 99%

Incentives for Retailer Forecasting: Rebates vs. Returns

2009

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T his paper studies a manufacturer that sells to a newsvendor retailer who can improve the quality of her demand information by exerting costly forecasting effort. In such a setting, contracts play two roles: providing incentives to influence the retailer's forecasting decision and eliciting information obtained by forecasting to inform production decisions. We focus on two forms of contracts that are widely used in such settings and are mirror images of one another: a rebates contract, which compensates the retailer for the units she sells to end consumers, and a returns contract, which compensates the retailer for the units that are unsold. We characterize the optimal rebates contracts and returns contracts. Under rebates, the retailer, manufacturer, and total system may benefit from the retailer having inferior forecasting technology; this never occurs under returns. Although one might conjecture that returns would be inferior because its provision of "insurance" would discourage the retailer from forecasting, we show that returns are superior.

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Coordinating Contracts for Decentralized Supply Chains with Retailer Promotional Effort

Cited by 105 publications

References 0 publications

Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions

Effect of Supply Reliability in a Retail Setting with Joint Marketing and Inventory Decisions

Impacts of Returning Unsold Products in Retail Outsourcing Fashion Supply Chain: A Sustainability Analysis

Incentives for Retailer Forecasting: Rebates vs. Returns

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