Buyer–supplier relationship and optimisation model in a dynamic collaborative network with shortages allowed

Abstract

To remain competitive, enterprises must build and manage product/service customisation and dynamic collaborative networks to respond to market needs in a flexible manner with competitive price and high product/service quality. This study deals with the emerging research problem of optimally dynamic combined decisions: retail price, stock depletion time/service level (SL) and replenishment schedule/quantity in a decentralised two-echelon perishable product collaborative network comprising a single supplier and a single retailer (buyer) over a finite multi-period planning horizon. Analytical solutions are derived using calculus with dynamic programming under two different trading policies, namely retailer-managed inventory with price-only (RMIPO) mode and vendor-managed inventory with consignment contract (VMICC) mode. In both models, shortages are allowed and are fully backlogged. The validity of the proposed approach is demonstrated using the case of a simple supply chain comprising a regional seafood supplier and a local branch store of a national retail chain. The results show that the VMICC policy yields lower retail price, larger replenishment quantity, higher SL and greater channel-wide profit than the RMIPO policy and achieves a win-win situation for both parties in the supply chain. Additionally, consumers benefit from lower retail price and higher SL in the VMICC policy.

Keywords:

• supply chain management
• pricing theory
• collaborative networks
• shortages

Disclosure statement

No potential conflict of interest was reported by the author.

Acknowledgements

The assistance of Miss Jia-Yan Chen in compiling the data presented in this study is appreciated. Pat Wyton is also appreciated for his editorial assistance.

Additional information

Funding

The author would like to thank the Ministry of Science and Technology (Taiwan) for the partial support of this study under contract numbers NSC101-2410-H-251-001 and 102-2410-H-153-021-MY2.