Transfer of Risk in Supply Chain Management with Joint Pricing and Inventory Decision Considering Shortages

Irfanullah Khan and Biswajit Sarkar
Additional contact information
Irfanullah Khan: Department of Industrial & Management Engineering, Hanyang University, Ansan 15588, Korea
Biswajit Sarkar: Department of Industrial Engineering, Yonsei University, 50 Yonsei-ro, Sinchon-dong, Seodaemun-gu, Seoul 03722, Korea

Mathematics, 2021, vol. 9, issue 6, 1-20

Abstract: This study is the first to consider a distribution-free approach in a newsvendor model with a transfer of risk and back-ordering. Previously, in many articles, discrete demand is considered. In this model, we consider a newsvendor selling a single seasonal item with price-dependent stochastic demand. Competition in markets has forced the retailer and manufacturer to coordinate in decentralized supply chain management. A coordination contract is made between a retailer and manufacturer to overcome the randomness of demand for a short-life-cycle product. The retailer pays an additional amount per product to transfer the risk of unsold items. The manufacturer bears the cost of unsold products from the retailer. Shortages are allowed with back-ordering costs during the season. The distribution-free model is developed and solved with only available demand data of mean and standard deviation. Stackelberg’s game approach is used to calculate the optimal ordering quality and price. This model aims to maximize expected profit by optimizing unit selling price and ordered quantity through coordination. To illustrate that the model is robust, numerical experiment and sensitivity analyses are conducted for both decentralized and centralized supply chain management. For applicability of the model in the real-world business scenario, managerial insights are provided with sensitivity analysis.

Keywords: newsvendor; shortages; transfer of risk; distribution-free approach; Stackelberg game approach; stochastic-price-dependent demand (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.mdpi.com/2227-7390/9/6/638/pdf (application/pdf)
https://www.mdpi.com/2227-7390/9/6/638/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:9:y:2021:i:6:p:638-:d:518846

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().