DIRECT-STORE-DELIVERY STRATEGY OF A SUPPLY CHAIN CONSIDERING CORPORATE SOCIAL RESPONSIBILITY AND PRE-SALES SERVICE UNDER DEMAND UNCERTAINTY

Abstract

In the FMCG industry, growing retailers rely on manufacturers for in-store operations through Direct-Store-Delivery (DSD). However, under demand uncertainty, the motivation of manufacturers and retailers to adopt DSD and the impact of DSD on corporate social responsibility (CSR) and pre-sales service investments are understudied. Inspired by real-world practice, we consider a supply chain consisting of a manufacturer performing CSR efforts and a retailer undertaking pre-sales service efforts, where the upstream and downstream of the supply chain can use conventional or DSD channels to deliver products. We develop a game-theoretic model to analyze the optimal channel delivery strategies and pricing and investment decisions of the manufacturer and retailer. Our results reveal that adopting DSD can incentivize the manufacturer to invest more in CSR and the risk-neutral retailer to invest more in pre-sales service. When risk aversion increases, the retailer under the DSD channel invests in a lower pre-sales service level. Second, the manufacturer can obtain higher revenue under the DSD channel. The “additive effect” of DSD and the retailer risk aversion can maximize the manufacturer’s revenue. Comparatively, the retailer should offer DSD more when the demand uncertainty is more elevated; otherwise, the retailer should provide the conventional delivery channel more. And the risk-averse retailer should offer DSD when the risk aversion degree is low. Third, the manufacturer, retailer, and the environment can achieve a win-win-win result by adopting DSD. Additionally, we illustrate the managerial insights with the Coca-Cola distribution case. Further, we extend to the case where the operational cost is linear and conclude that DSD adoption may require additional benefits to drive it. Finally, several managerial insights and promising areas for further research are derived.