Coordinating inventory sharing with retailer's return in the consignment contracts

Abstract

Hospitals purchase medical supplies from the dealer on consignment contracts. Dealer provides a return policy for unused inventory but charging a return fee. Two hospitals could share inventory which reduces the amount of return to the dealer. Motivated by this consignment contract policy for the medical supply chain, we develop a common dealer and two independent retailers framework that considers retailers' sharing action and return problem. We aim at developing a coordinating mechanism to manage the retailers' sharing and return action that benefits both the dealer and retailers. Dealer-dominated sharing and retailer-dominated sharing are compared from the perspective of sharing performance and expected profits. We also analyse the condition that the dealer is better off from retailers' sharing when the dealer has the power to encourage retailers' sharing, and the dealer's trading preference for a non-cooperative retailer or cooperative retailers when the dealer has no power to encourage retailers' sharing. Numerical experiments are conducted to examine the sensitivity of retailers' sharing decisions, retailers' and dealer's profit to the return price.

Keywords:

• Consignment stock
• inventory sharing
• return policy
• supply chain coordination
• healthcare logistics

Acknowledgments

The authors are very grateful to the anonymous referees for constructive suggestions to improve the article.

Disclosure statement

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

Additional information

Notes on contributors

Ping Zhang

Ping Zhang Ms Ping Zhang is currently a Ph.D. candidate in Operations Management from The Hong Kong Polytechnic University, Hong Kong, China. Her research interests include Supply Chain Management, Healthcare Operations Management, and Marketing Interface.

King-Wah Pang

King-Wah Pang Dr King-Wah Pang is currently an associate professor at the Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hong Kong, China. He received a bachelor's degree and Ph.D. degree in Industrial Engineering and Engineering Management from The Hong Kong University of Science and Technology, Hong Kong, China, in 1997 and 2001, respectively. His research interests include Operations Management, Optimisation, and Heuristic Algorithms.

Hong Yan

Hong Yan Prof. Hong Yan is currently a professor at The Hong Kong Polytechnic University College of Professional and Continuing Education, Hong Kong, China. He received a master's degree in Information Management from The University of Electro-Communications, Tokyo, Japan, in 1987. He also received a Ph.D. degree in Business Administration from Carnegie Mellon University, Pittsburgh, US, in 1992. His research interests include Supply Chain Management, Logistics, and Industrial Engineering Management.