Supply chain coordination under retail competition and advertising dependent demand

• Main Authors: Mehdi Mirzaee, Ahmad Makui, Ebrahim Manzari Tavakoli
• Format: Article
• Language: English
• Published: Growing Science 2012-04-01
• Series: International Journal of Industrial Engineering Computations
• Subjects: Supply chain coordination; Advertising cost sharing contract; Quantity discount contract; Retail competition
• Online Access: http://www.growingscience.com/ijiec/Vol3/IJIEC_2012_21.pdf

Supply chain coordination as an effective tool plays an important role in improving supply chain performance. In this article, a two-level supply chain with one manufacturer and two retailers is considered. The order quantity that retailers are faced with depends on the amount of advertisements and both retailers compete with each other on advertising. The Stackelberg game is established between manufacturer and retailers such that the manufacturer and the retailers play the leader and the follower roles, respectively. First, the manufacturer determines the wholesale prices for retailers and instead, the retailers determine the order quantity and advertising level, simultaneously. The manufacturer produces one kind of product and delivers it to retailers before the beginning of selling season. Retailers can affect the order quantity regarding the demand dependency on advertising level through the incurred costs from the advertising. In this paper, we show that we can achieve the desirable supply chain coordination through using combined quantity discount and advertising cost sharing contracts. We also consider the win-win situation for all the members of the supply chain.