Supply Chain Buyback Contract Based on the Different Expectations of Market Demand Distribution

Supply Chain Buyback Contract Based on the Different Expectations of Market Demand Distribution

Yang Gao (University of Shenyang Technology, Shenyang, China), Meiou Wang (University of Shenyang Technology, Shenyang, China) and Qiang Hou (University of Shenyang Technology, Shenyang, China)
DOI: 10.4018/IJISSCM.2019070101

Abstract

Nowadays, the members in a supply chain are seen as an integrity. In order to maximize the supply chain profit, the authors consider a contract of buyback. In this article, they focus on a single manufacturer and a single retailer in the supply chain. In order to match the market demand, a new perspective is introduced into the buyback contract model. By comparing the predicted demand of the manufacturer and the retailer with the real demand, they will obtain four quadrants about the difference of the market demand forecasts. By combining the profit models with different market demand forecasts in the four quadrants, the closed-form optimal market model is created. The solutions of the optimal price and the optimal quantity under the centralized mode, non-contract decentralized mode and buyback contract mode are compared. The authors find that the non-contract decentralized mode model cannot successfully coordinate the supply chain, while the buyback contract mode allows for the coordination of the supply chain and the generation of more profit from the supply chain. From this new perspective of the supply chain contract, a reasonable result can be obtained. Numerical examples are provided to illustrate the results, with analysis conducted on the model.
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1. Introduction

The supply chain system has a combination of different members and the decision of each member influences the supply chain. In this dynamic and complex environment, the quality of product is the assurance in supply chain’s full life-cycle. But better coordination of business processes in the network is the only way to improve performance of the supply (Zhang, Ran, & Luo, 2015; Xu, 2015). If all members make a unanimous decision to take part, this will allow for the coordination of the supply chain (Kanda, Arshinder & Deshmukh,2007). It usually assumes that the market demand is known but in practice the market demand is unpredictable. The manufacturer and retailer cannot obtain accurate market demand information and instead make decisions about product sales that are mostly based on their own predictions. It is essential to consider the forecast of the market demand in the supply chain profit model.

The manufacturer and retailer will face issues of pricing and ordering quantity when the market demand is randomly distributed (Zheng et al., 2015). To enhance supply chain performance, some researchers of supply chain management have realized the potential importance of collaborative activities (Gu et al., 2017). Past researchers discovered that the supply chain profit is usually solved in two modes, which are the centralized mode and decentralized mode. After comparison, they found that the model in the decentralized mode cannot achieve supply chain coordination and thus, they introduced the buyback contract into the supply chain profit model (Choi, 2008). To minimize total cost of supply chain network. Golpîra (2017) proposed a model to formulate a supply chain network design (SCND) problem against uncertainty, which objective of is to obtain more realistic model regarding uncertain demand. There are many types of contracts in the supply chain, with the Japanese researchers being one of the earlier groups to study these contracts. They proposed the cooperation between companies and manufacturers (Clark, 1989). Kawasali and McMillan (1987) discussed the special contractual relationship. Previous calculations have shown that the buyback contract can be integrated into the supply chain.

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