Inventory and coordination issues with two substitutable products
Date
2010-03Source Title
Applied Mathematical Modelling
Print ISSN
0307-904X
Electronic ISSN
1872-8480
Publisher
Elsevier
Volume
34
Issue
3
Pages
539 - 551
Language
English
Type
ArticleItem Usage Stats
178
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175
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Abstract
This study considers a two level supply chain in a newsboy setting with two substitutable
products. Demands for the two products are assumed independent as long as both are
available. If, however, a product stocks out, some of its demand is transferred to the available
one with a known probability which ultimately creates a dependence on the amount
of purchased items. The retailer is allowed to return some or all of the unsold products to
the manufacturer with some credit. The expected chain profit, the retailer’s and the manufacturer’s
profit expressions are derived under general conditions. Special cases are
inspected to investigate the conditions under which channel coordination is achieved. It
is demonstrated that channel coordination can not be achieved if unlimited returns are
allowed with full credit, a result that agrees with the findings of Pasternak [B.A. Pasternack,
Optimal pricing and return policies for perishable commodities, Market. Sci. 4 (1985) 166–
176] for the single item case. For the cases of unlimited returns with partial credit, the conditions
for coordination are derived for one way full substitutions. For exponential demand
explicit expressions for the channel and retailer’s expected profit functions are provided.