E-channel management under vendor-managed inventory by option and conventional contracts: the influence of outsourcing decisions

ABSTRACT

In the era of widespread e-commerce adoption, businesses encounter challenges in managing e-channel demand and production constraints. This study explores an e-channel with an e-retailer with no pattern demand, a primary supplier, and a backup supplier to address these issues through outsourcing. The primary supplier, facing limited production capacity and potential failure, seeks assistance from the backup supplier under a vendor-managed inventory (VMI) strategy. Two contracts, a conventional contract with penalties for rejecting units and an option contract allowing negotiations, are compared. Results indicate that the option contract promotes a win-win scenario, enhancing overall e-channel efficiency and earnings compared to the conventional contract. Negotiations facilitated by the backup supplier contribute to e-channel coordination. However, if the option price exceeds the penalty difference, the conventional contract may be more attractive to the primary supplier.

Graphical abstract

KEYWORDS:

• Option contract
• outsourcing
• E-channel coordination
• reliable production
• VMI

Disclosure statement

No potential conflict of interest was reported by the author(s).

Availability of data and material

Due to the nature of this research, data is available within the text

Additional information

Funding

The authors declare that no funds, grants, or other support were received during the preparation of this manuscript.

Notes on contributors

Amir Mohammad Ahmadi Nezhad

Amir Mohammad Ahmadi Nezhad is currently an MSc student of Industrial Engineering at the School of Industrial and Systems Engineering, College of Engineering, University of Tehran. His main scientific interests include operations research, inventory management, and humaniratian logistics and supply chain mangmnet.

Mehdi Mazloum

Mehdi Mazloum is currently an MSc student of Industrial Engineering at the School of Industrial and Systems Engineering, College of Engineering, University of Tehran. His main scientific interests include operations research, inventory management, and humaniratian logistics and supply chain mangmnet.

Alireza Bakhshi

Alireza Bakhshi is currently a PhD candidate of industrial engineering at Department of Industrial Engineering, Sharif University of Technology. He received his MSc degree from the School of Industrial and Systems Engineering, College of Engineering, University of Tehran. His research focuses on Coordination, Supply chain Management, Optimization, Contract Theory, and Operations Research. He has published several papers in international professional journals such as Annals of Operations Research, Computers & Industrial Engineering, Engineering Applications of Artificial Intelligence, etc.

Fariborz Jolai

Fariborz Jolai is a Professor of Industrial Engineering at the School of Industrial and Systems Engineering, College of Engineering, University of Tehran. He has published more than 300 papers in international journals, such as European Journal of Operational Research, International Journal of Production Research, International Journal of Production Economics, IISE Transactions on Healthcare Systems Engineering, International Journal of Management Science and Engineering Management, Journal of Cleaner Production, Applied Mathematical Modelling, Journal of Humanitarian Logistics and Supply Chain Management, etc. His current research interests are Supply chain management, inventory managent, Scheduling, transportation optimization, healthcare optimization, queueing theory, humanitarian logistics, supply chain management, and production planning optimization problems.

Amir Aghsami

Amir Aghsami is a Ph.D. in Industrial Engineering at the School of Industrial Engineering, Khaje Nasir Toosi University of Technology. He received his MS in Industrial engineering from University of Tehran, Iran. He is currently a senior research fellow at the School of Industrial and Systems Engineering, College of Engineering, University of Tehran. He has published more than 80 papers in international professional journals such as Socio-Economic Planning Sciences, Computer and industrial engineering, Expert Systems with Applications, Quality technology & quantitative management, Journal of Cleaner Production, IISE Transactions on Healthcare Systems Engineering, etc. His main scientific interests include queueing theory, stochastic process, operations research, healthcare optimization, queueing‑inventory systems, mathematical modeling, supply chain management, disaster management, data mining, waste management, and inventory control.