A Model and its Solution Method for a Two-Item Newsvendor Supply Chain with Return Policy and Demand Leakage

Che-Tsung Tung (), Kuo-Hsien Wang () and Yu-Je Lee ()

International Journal of Academic Research in Accounting, Finance and Management Sciences, 2014, vol. 4, issue 1, 397-408

Abstract: We study a one-manufacturer and one-retailer type of supply chain that the manufacturer manufactures two newsvendor-type items and offers a buy-back contractual commitment to the retailer who sells the items in a stochastic demand market with various prices, allowing demand leakage from high-priced item to low-priced one. The objective of this study is to coordinate the chain by jointly determining wholesale prices, buy-back prices, retail prices and order sizes. We first derive a succinct model for the chain in which the manufacturers expected profit subject to the retailer’s optimal expected profit will be explored. And a solution method to the case of uniformly distributed error demand is subsequently proposed; accordingly, a series of examples along with graphical concavity and satisfying constraint of the manufacturer’s expected profit are conducted to validate our solution method.

Keywords: Supply chain; Returns policy; Demand leakage; Inventory (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hur:ijaraf:v:4:y:2014:i:1:p:397-408

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