Multi-period channel coordination in vendor-managed inventory for deteriorating goods

• Published in: International journal of production research Vol. 50; no. 16; pp. 4396 - 4413
• Main Authors: Chen, Liang-Tu, Wei, Chun-Chin
• Format: Journal Article
• Language: English
• Published: Abingdon Taylor & Francis Group 15.08.2012; Taylor & Francis; Taylor & Francis LLC
• Subjects: Applied sciences; Channels; Decision theory. Utility theory; Dynamic programming; Exact sciences and technology; Game theory; Inventory; Inventory control, production control. Distribution; Inventory management; Mathematical programming; Nondurable goods; Operational research and scientific management; Operational research. Management science; Retail stores; Revenue sharing; Scheduling, sequencing; Studies; Supply chain management; vendor managed inventory; Coordination; Pareto optimum; Decision making; Retail marketing; Rebate; Scheduling; Selling price; Supply demand balance; Vendor Managed Inventory; Sharing; Replenishment; supply chain management; Demand function; Supplier; Planning; Dynamic programming; Joint replenishment; Contract; Logistics
• ISSN: 0020-7543; 1366-588X
• DOI: 10.1080/00207543.2011.592159

This study examines the problem of optimally dynamic joint decisions, including replenishment scheduling/quantity, retail price, wholesale price, and revenue-sharing allocation, in a vertically decentralised single-manufacturer Stackelberg and single-retailer channel over a multi-period planning horizon, subject to deteriorating goods and multivariate demand function. This study uses a calculus-based formulation combined with dynamic programming techniques to solve the channel coordination decision problem. Additionally, three arrangements, namely price-only contract, revenue-sharing contract, and revenue-sharing plus linear rebate and side-payment contract for channel coordination, are developed under retailer-managed inventory (RMI) and vendor-managed inventory (VMI) systems, respectively. The analysis reveals that the proposed policy under the VMI system with the revenue-sharing plus linear rebate and side-payment contract tends to obtain low retail prices and large demand quantity, and results in near-perfect coordination, including greater system efficiency and Pareto improvements, for the vertically decentralised dynamic channel.