DIstribution channel coordination for perishable items under mixed issuing policy

Abstract

Supply chain management (SCM) is an integration of business process from end users through original suppliers that provides products, service and information that add value for customers. This thesis deals with a channel coordination problem in SCM. Coordination among manufacturers (suppliers), distributors and retailers is a very important strategic issue in modern manufacturing and distribution systems. Recently, in Korea, a new marketing practice is drawing attentions from some suppliers (manufacturers) and large-scale retailers in dealing with perishable consumer goods. It has been customary for the retailers to return the goods unsold until their expire date. Thus the retailers have not given much attention to their ordering policy since the items outdated could be simply returned to the supplier at almost no cost, which made the supplier quite perplexed. In the new practice, in return for the suppliers to offer a lower unit price to the retailers, they are not permitted returning the goods unsold to the suppliers. As a result, the suppliers become able to maintain better accounting and inventory systems while the retailers can lower the unit retail price, which, in turn, increases the product demand from consumers. Consequently, both parties are enjoying higher financial gains in addition to the satisfied customers. In other words, the benefits coming from the decreased quantity of outdated goods and increased sales are being shared among the suppliers, retailers and customers. This thesis is motivated by the new market practice and attempts to gain an insight into the question of ‘how costs/benefits will be distributed over the related parties under the new practice’. The new practice will be analyzed from the retailer’s point of view. For the analysis, the demand rate is assumed to be a function of price and inventory level. Since the stock-dependent demand rate implicitly implies that all items in inventory are displayed for sale, the customers enforc...