Coordinating contracts for supply chains that market with mail-in rebates and retailer promotions

Shilei Yang, Charles L Munson, Bintong Chen and Chunming Shi
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Shilei Yang: Southwestern University of Finance and Economics, Chengdu, P.R. China
Charles L Munson: Washington State University, Pullman, USA
Bintong Chen: University of Delaware, Newark, USA
Chunming Shi: Wilfrid Laurier University, Waterloo, Canada

Journal of the Operational Research Society, 2015, vol. 66, issue 12, 2025-2036

Abstract: Marketing promotions are pervasive in industry, yet too often they are introduced without regard to their potential impact on the whole supply chain. This paper considers a cooperative business environment where a manufacturer and a retailer work interactively in determining their independent sales promotional actions. We use a newsvendor-modelling framework to study coordinating issues when the manufacturer provides mail-in rebates directly to consumers while the retailer exerts promotional effort to further spur consumer demand. We find that quantity discount contracts in conjunction with buy-back achieve supply chain coordination. Successful coordination can result in significant supply chain improvement, which leads the retailer to order more units and exert higher promotional effort level. With numerical examples, we provide additional insights on the conditions for the manufacturer to offer rebates.

Date: 2015
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