Inventory Strategy of Dual-Channel Supply Chain from Manufacturer's Perspective

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1 Intenational Jounal of Management and Fuzzy Systems 2018; 4(2): doi: /j.ijmfs ISSN: (Pint); ISSN: (Online) Inventoy Stategy of Dual-Channel Supply Chain fom Manufactue's Pespective Xie Fengqin *, Nie Qixuan, Yu Hongfei College of Tanspotation, Shandong Univesity of Science and Technology, Qingdao, China addess: * Coesponding autho To cite this aticle: Xie Fengqin, Nie Qixuan, Yu Hongfei. Inventoy Stategy of Dual-Channel Supply Chain fom Manufactue's Pespective. Intenational Jounal of Management and Fuzzy Systems. Vol. 4, No. 2, 2018, pp doi: /j.ijmfs Received: July 8, 2018; Accepted: July 17, 2018; Published: August 24, 2018 Abstact: Compaed with the taditional etail channel, the online channel has advantages such as wide coveage, low cost and small time limit. Manufactues with dual channels can incease maket shae and educe opeating costs. Howeve, the incoodination between channels and the lack of management methods make it difficult to implement the dual-channel supply chain. The supply chain which contains both offline and online sales channels has gadually become an impotant pat of the supply chain eseach. The inventoy management is an impotant facto influencing entepise opeating cost and supply chain efficiency. As thee ae many uncetain factos in the supply chain system, inventoy management becomes one of the difficulties that manufactuing entepises face when expanding the online channel. Diffeent fom the taditional supply chain inventoy contol, the dual-channel supply chain inventoy management has its own chaacteistics. Fom the pespective of manufactuing entepises, this pape takes the dual-channel supply chain as the eseach object. The pofit models wee established unde the independent inventoy stategy, centalized inventoy stategy and a stategy whee the online channel is outsouced to a thid paty. The optimal inventoy and maximum pofit unde diffeent opeation modes ae solved and compaed with each othe though numeical simulation analysis. The study povide guidance fo inventoy management of manufactuing entepises to educe opeating costs and impove the efficiency of supply chain. Keywods: Dual-Channel Supply Chain, Inventoy Stategy, Thid Paty 1. Intoduction With the apid development of e-commece, moe and moe manufactuing entepises set up online channels on the basis of taditional etail channels. The supply chain which contains both offline and online sales channels has gadually become an impotant pat of the supply chain eseach. Some scholas have studied the pice competition and coodination of the dual-channel supply chain. Hua s [1] analysis showed that the delivey peiod has a stong impact on the picing stategies and pofits of manufactues and etailes. Ryan et al. [2] compaed and analyzed the balance solution and integation system scheme of the coodination dual-channel supply chain system, and poposed the scheme of shaing evenue and loss. Li et al. [3] established the Nash pice balance poblem model in the two-channel supply chain, and veified the impact of isk avesion index on decision-making unde diffeent paamete envionments. Tsay s [4] eseach esults show that the intoduction of diect channel when the supplie to the etaile's wholesale pices if changed accodingly, will not be the inteests of the damage to the etailes. Mukhopadhyay et al. [5] studied the optimal contact design of dual-channel supply chain unde infomation asymmety. Dumongsii [6] takes into account the consume utility demand function of pice and custome sevice peception, and constucts the model of manufactue leading etaile following. The eseach elated to the dual-channel inventoy stategy studied in this pape is as follows: Chiangab's [7] model of the uses ae divided into two types, if out of stock in a channel with customes will be

2 30 Xie Fengqin et al.: Inventoy Stategy of Dual-Channel Supply Chain fom Manufactue's Pespective tansfeed to anothe channel, in the custome's demand unde the condition of andom compaes the vaious stategic cost analysis. Geng et al. [8] solved the game equilibium between the poduction capacity constaint and the unconstained supply chain by taking into account the two-channel inventoy decision influenced by the poduction capacity facto. Yao [9] analyzed the optimal inventoy levels of physical stoes and electonic stoes based on diffeent inventoy stategies and compaed the applicability of diffeent stategies. Takahashi et al. [10] designed an impoved inventoy contol stategy by intoducing poduction and distibution costs, and veified the effectiveness of the poposed stategy with Makova analysis. Ellie et al. [11] consideed the dual channel inventoy allocation poblem in the tansit waehouse distibution cente and established the cost model unde the sevice level constaint. Fom the point of view of manufactues who have both offline and online sales channels, thee inventoy stategies ae put fowad: (1) independent inventoy stategy; (2) centalized inventoy stategy; (3) online channel outsoucing stategy. By establishing the pofit model unde these thee diffeent stategies, the optimal inventoy and maximum pofit ae solved. Afte that, the numeical simulation analysis is caied out. List of notations X,Y G y F ( x ), ( ) s e s, t e t v Q e, Q Table 1. List of notations. maket demand in online channel/offline channel 2. The Model In ode to exploe the optimal inventoy stategy of dual-channel supply chain inventoy system, this section constucted the dual-channel supply chain inventoy model unde diffeent stategy. The model takes pofit maximization as the objective function and inventoy level as the decision vaiable. The dual channel supply chain is descibed though demand ate, poduction cost, sales pice, inventoy holding cost, shotage cost and othe paametes. To simplify the model, this pape assumes that the two-channel supply chain system consists of one manufactue and one offline etaile [12], and the infomation of channel membes is completely symmetic. The manufactue is the coe entepise in the dual-channel supply chain and it possesses the online sales channel. The eseach peiod is the single sales peiod, and thee is no eplenishment in the sales peiod. The online channel sales the same single poduct as the offline channel. The poduction cost, wholesale pice, online pice and offline pice of the poduct ae all exogenous vaiables [13]. Both manufactues and etailes have fixed holding costs when holding inventoy,. And the vaiable holding cost, is linealy elated to the initial inventoy. Othe paamete notations ae shown in Table 1. cumulative distibution function of demand in online channel/offline channel unit shotage cost fo online channel/offline channel unit distibution cost fo online channel unit cost fo the manufactue distibute fo the etaile unit salvage value ode quantity fo online channel/offline channel i i π e, π pofit of online channel/offline channel unde stategy 2.1. Independent Inventoy Stategy Figue 1. Independent inventoy stategy. Unde the independent inventoy model, the manufactue and the etaile make inventoy decisions independently and hold thei own inventoy espectively. The manufactue's inventoy is used to meet the needs of online channel and the manufactue distibute the customes by itself (Figue. 1). The manufactue supplies to the downsteam etaile at the beginning of the sales peiod. This pat of the inventoy is held by the etaile and is used to meet demand fom offline channels. The etaile will not eplenish duing the sales peiod and the unit shotage cost is. In this case, the manufactue s evenue includes the sales and wholesale evenue. And when the demand is less than the inventoy level, the manufactue will get salvage value. Its costs include poduction costs and inventoy costs. And when the inventoy level can t meet the maket demand, it will cause shotage cost. Similaly, the etaile s evenue includes the sales evenue and the salvage value. And the costs consist of wholesale, inventoy and shotage. Theefoe, the expected pofits of manufactue and etaile ae as follows:

3 Intenational Jounal of Management and Fuzzy Systems 2018; 4(2): ( ) ( ) ( ) ( ) ( ) ( ) = p E Q X + w Q + v E Q X c Q + Q a + b Q t E min Q, X s E max X Q,0 1 e e min e, max e,0 e e e e e e e e ( ) ( ) ( ) ( Y Q ) = p E Q Y + v E Q Y w Q a + b Q s E max,0 The optimal ode quantity fo the manufactue and the etaile stoes ae as follows: pe te + se c be Qe = F pe te + se v p + s w b Q = G p + s v 2.2. Centalized Inventoy Stategy 1 min, max,0 The manufactue will centalize the management of its own inventoy in online channel and etailes' inventoy in offline channel. The manufactue conducts poduction in accodance with the etaile's odes and foecasts of the maket demand duing the sales peiod. And this pat of the inventoy is held by the manufactue. When thee ae new custome odes, they will be deliveed by the manufactue. The etaile will pay fo the delivey pe unit of poduction. (Figue 2) Figue 2. Centalized inventoy stategy. Unde this stategy, the expected pofits of manufactue and etaile ae as follows: ( ) ( ) ( ) ( ) ( ) min (, ) min (, ) max (, 0) = p E Q X + w Q + v E Q X + v E Q Y c Q + Q ae + be Qe + Q te E Qe X + t E Q Y se E X Qe 2 e e min e, max e,0 max,0 e ( ) ( ) ( ) 2 = p E min Q, Y w Q t E min Q, Y s E max Y Q, 0 The optimal ode quantity fo the manufactue and the etaile stoes ae as follows: pe te + se c be Qe = F pe te + se v p t + s w Q = G p t + s 2.3. Online Channel Outsoucing Stategy Similaly to the independent inventoy stategy, the manufactue and the etaile make inventoy decisions independently in thei espective channels. The diffeence is that the manufactue set up the online channel on the platfom povided by the thid paty. The ode fulfillment, inventoy management, tanspotation and distibution of online channels ae all outsouced to the thid paty (Figue. 3). The manufactue will pay to the thid paty platfom fo each unit of poduction sold. Figue 3. Online channel outsoucing stategy. Unde this stategy, the expected pofits of manufactue and etaile ae as follows:

4 32 Xie Fengqin et al.: Inventoy Stategy of Dual-Channel Supply Chain fom Manufactue's Pespective ( θ ) min (, ) max (,0) ( ) s E max ( X Q,0) = p E Q X + w Q + v E Q X c Q + Q The optimal ode quantity fo the manufactue is 3 e e e e e e e ( ) ( ) ( ) ( Y Q ) = p E Q Y + v E Q Y w Q a + b Q s E max,0 pe + se θ c Qe = F pe + se θ v The offline channel will not be affected by the thid paty, so the optimal ode quantity of the etaile is the same as the offline channel ode quantity of independent inventoy stategy. µ e µ p e 3 min, max,0 p w c t e Table 2. Values of the paametes. 3. Numeical Simulation Analysis In this section, the optimal inventoy and the maximum pofit unde diffeent levels of demand uncetainty ae studied though the numeical example. Accoding to the eseach liteatue [14, 15], the demand of the online channel and offline channel ae nomal distibution: ~300,, Y~300,. Table 2 lists the othe paametes that wee used in the numeical example. t v a e a b e b s e s The following (Figue. 4, Figue. 5, Figue. 6) the analysis of the optimal ode quantity and maximum pofit of the manufactue and the etaile at diffeent vaiance levels unde diffeent inventoy stategies. Optimal Inventoy Level (Independent Inventoy Stategy) Demand Uncetainty Manufactue Retaile Figue 4. Relation between demand uncetainty and optimal ode quantity. The manufactue and the etaile's optimal ode quantity is inceased with the incease of the uncetainty of maket demand. To pevent cannot meet the demand of maket and the shotage loss, they need moe quantity of poductions to ensue adequate inventoy eseves. As can be seen fom Figue. 4, compaed with the etaile, the manufactue's optimal ode quantity ae moe affected by the uncetainty of demand, which indicates that as a manufactue, it needs to have a moe accuate pediction of maket demand. Manufactue's Pofit Demand Uncetainty Independent Centalized Outsoucing Figue 5. Relationship between demand uncetainty and manufactue's pofit. Retaile's Pofit Independent Centalized Outsoucing Demand Uncetainty Figue 6. Relationship between demand uncetainty and etaile pofit.

5 Intenational Jounal of Management and Fuzzy Systems 2018; 4(2): It can be found fom Figue. 5 and Figue. 6 that the uncetainty of maket demand will lead to the pediction deviation of the manufactue and the etaile. Impope odes can lead to ovestocking o lack of inventoy, thus educing pofit levels. To cope with changing demand, manufactues and etailes tend to stoe moe. The incease in inventoy will also incease opeating costs and educe pofits. In the same maket demand envionment, the pofit of the manufactue unde centalized inventoy stategy is highe than that unde independent inventoy stategy, while the pofit of the etaile is opposite. This is because the etaile pays the manufactue exta delivey costs unde the centalized inventoy stategy. As the coe entepise in the supply chain, the manufactue should conside the oveall inteests of the supply chain compehensively unde the dual-channel centalized inventoy stategy. The Manufactue should establish a good elationship with the etaile to achieve a win-win esult. As fo the manufactue, the pofit unde the online channel outsoucing stategy is much highe than that unde the independent inventoy stategy. And with the inceasing uncetainty of maket demand, the pofit of online channel outsoucing stategy also tends to be centalized inventoy stategy. This is because online channel outsoucing dispeses the channel isk caused by uncetain demand. The manufactue outsouce the online channel to a moe pofessional thid paty can impove the maket coveage of online channels. At the same time, the delivey speed and efficiency of the thid paty ae highe, which make the online channel opeate efficiently. Manufactue's Pofit Outsoucing Cost of Unit Poduction Outsoucing Independent Figue 7. Relationship between outsoucing cost and manufactue's pofit. Figue 7 shows the pofit compaison between the manufactue's independent inventoy stategy and the online channel outsoucing stategy when =20. It can be seen that the pofits of the manufactue gadually decease as the cost of unit poduction to be paid to the thid paty inceases. When is about 0.9, the maximum pofit of outsoucing stategy is equal to the maximum pofit of independent inventoy stategy. When outsouce the online channel, the manufactue pefes the moe pofessional and efficient online opeation technologies and delivey sevices of the thid paty. The maximum pofit is closely elated to the outsoucing cost, and the appopiate cost makes the outsoucing stategy supeio to opeating the online channel independently. 4. Conclusion Whethe to expand online channels on the basis of oiginal etail channels is one of the impotant decisions faced by coe manufactuing entepises in the supply chain. In theoy, the dual channel supply chain stuctue can achieve bette allocation of esouces and educe channel isk. Howeve, the addition of a new channel means that manufactues have to make decisions on the optimal inventoy of each channel, and they also need to analyze and select multiple inventoy stategies accoding to maket conditions. This pape constucted thee inventoy stategies with dual channel stuctue, solved the optimal ode quantity and maximum pofit unde diffeent stategies, and analyzed the coesponding applicable conditions. Manufactues should coodinate thei elationships with etailes whateve the stategy. The enhancement of infomation shaing and the establishment of income contact ae beneficial to the impovement of pofits of both paties. In addition, when manufactues outsouce the online channels to the thid paty, it will fully exploit maket and pomote the efficiency of supply chain. This shows that the thid paty's choice assessment and pice negotiations ae paticulaly impotant. Refeences [1] Hua G, Wang S, Chengc T C E. Pice and lead time decisions in dual-channel supply chains [J]. Euopean Jounal of Opeational Reseach, 2010, 205(1): [2] Ryan J K, Sun D, Zhao X. Coodinating a Supply Chain With a Manufactue-Owned Online Channel: A Dual Channel Model Unde Pice Competition [J]. IEEE Tansactions on Engineeing Management, 2013, 60(2): [3] Li B, Chen P, Li Q, et al. Dual-channel supply chain picing decisions with a isk-avese etaile [J]. Intenational Jounal of Poduction Reseach, 2014, 52(23): [4] Tsay A A, Agawal N. Channel Conflict and Coodination in the E-Commece Age [J]. Poduction & Opeations Management, 2010, 13(1): [5] Mukhopadhyay S K, Zhu X, Yue X. Optimal Contact Design fo Mixed Channels Unde Infomation Asymmety [J]. Poduction & Opeations Management, 2010, 17(6): [6] Dumongsii A. A supply chain model with diect and etail channels [J]. Euopean Jounal of Opeational Reseach, 2008, 187(3): [7] Chiangab W Y K. Managing inventoies in a two-echelon dual-channel supply chain [J]. Euopean Jounal of Opeational Reseach, 2005, 162(2): [8] Geng Q, Mallik S. Inventoy competition and allocation in a multi-channel distibution system [J]. Euopean Jounal of Opeational Reseach, 2007, 182(2):

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