The impact of online sales on centralised and decentralised dual-channel supply chains

Abstract

This paper studies a supply chain structure featuring two different types of distribution channels through which manufacturers sell products. The centralised and decentralised distribution channels considered in this study are affected by online sales outside the structured channels. In the centralised distribution channel, two retail stores located in geographically distinct markets are operated by a single owner. In the decentralised distribution channel, two retailers independently operate two retail stores. In the non-cooperative scenario, the manufacturer always prefers the decentralised distribution channel irrespective of whether an online channel is used. To achieve channel coordination, a revenue-sharing contract is applied, but it can be used to coordinate only the decentralised distribution system. Therefore, a modified revenue-sharing contract is proposed to coordinate the centralised distribution system. The analytical study reveals that without coordination among the channel members, the manufacturer always earns maximum profit in decentralised distribution systems. However, if the supply chain is coordinated, then the manufacturer receives more benefits from using the centralised distribution systems under certain conditions. Propositions are presented to describe the characteristics of distribution structures, and to provide meaningful management guidelines for coordinating them. Extensive numerical investigations are also presented.