Supply Chain Coordination for Newsvendor-Type Products with Two Ordering Opportunities

Abstract

This chapter discusses supply chain coordination issues for anewsvendor-type product with two ordering opportunities. We consider atwo-echelon supply chain consisting of one manufacturer and one buyer,where the manufacturer sells his product through the buyer who faces arandom demand. The manufacturer does not hold inventory but activatesproduction with a fixed production setup cost to respond to the buyer'sorder. At the start of the selling period, the buyer's first order isdelivered. By the end of the sales period, an urgent second order isallowed to meet the willingly-backordered demand if the buyer shares themanufacturer's setup cost incurred by the second order. We discuss twoparties' optimal order policies in the decentralized setting, andexamine the impact of pool schemes of the second setup cost on thedecentralized system performance. We show that the decentralized systemwould perform best if the manufacturer covers utterly the secondproduction setup cost. Also, we prove that under the twice-orderframework in the chapter the expected profit of the centralized systemis not equal to but greater than the sum of two members' expectedprofits in the decentralized system, which is not consistent with ourexpectation. In order to maximize the expected profit of the channel,two coordinated policies are proposed to achieve perfect coordination: atwo-part-tariff policy for the special case that the buyer pays all themanufacturing setup cost, and a revised revenue-sharing contract for thecase that two parties share the manufacturing setup cost.