The Effect of Sales Rebate and Penalty with Return on Coordination of Supply Chain via Conforming Warehouse

Abstract

Abstract:

As a typical method to finance supply chains through cooperation among manufacturers, retailers and banks, confirming ware-house financing (CWF) provides working capital to small and medium enterprises, enhances supply chain competitiveness through win-win solutions and reduces credit risk of banks. However, when decisions are decentralised, CWF cannot coordinate the entire supply chain because of double marginalisation, and manufacturer's promise to buyback unsold products makes the retailer tend to order much more products than market demand but not to pay enough effort to sell it. Assuming that final consumer demand is influenced by retailers' sales efforts, we construct a Stackelberg model of supply chain financed via CWF. This paper studies optimal order quantities and sales efforts when decisions are centralised and decentralised and shows that traditional CWF cannot coordinate the supply chain. Two co-ordinated policies are examined:one that employs sales rebates and penalties and the other that employs sales rebates and penalties with merchandise return privileges. We show that only the latter can coordinate a supply chain financed via CWF. A numerical example illustrates the findings of this study.

Key words: conforming warehouse, rebate and penalty policy, return, sales effort, supply chain coordination

Lin Qiang, Shi Honghong, Zhang Baoyin. The Effect of Sales Rebate and Penalty with Return on Coordination of Supply Chain via Conforming Warehouse[J]. , 2018, 30(9): 209-217.

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