Socially concerned periodic review replenishment system with customer service level and supply chain contracting

This study contributes to the periodic review inventory system literature by: (1) investigating customer service level (CSL) as a social responsibility in pharmaceutical supply chains (PSCs) and (2) proposing supply chain contracting to achieve win-win coordination and guarantee a satisfied CSL. Specifically, considering the demand uncertainty as one of the main challenges faced by pharmacies, we analyze how applying contracts to coordinate the inventory policy of a pharmacy with that of its supplier can affect their profits and the CSL offered to society. Having shown the advantages of the centralization compared to the decentralization, we design a coordination scheme based on the quantity discount contract to encourage the players move towards centralization. Under the proposed scheme, we first obtain the minimum and maximum acceptable amounts of discount from each actor’s viewpoint. Then, we propose a benefit-sharing strategy in order to make the plan interesting to both sides. The proposed discount contract and benefit-sharing strategy distribute the extra profits equitably between the two participants according to their bargaining power, which can make a win-win condition for two actors. Our results suggest that coordinating review period and order-up-to-level of the retailer and replenishment multiplier of the supplier will be of benefit in terms of both economic profitability and social responsibility.

Supply Chain Contracting with Linear Utility Function

The supply chain contracting has traditionally been based on the profit maximization assumption. Recent research has shown that some behavior factors may influence the decision making of supply chain members. The authors utilize a linear utility function to depict such behavior factors and incorporate these into the newsvendor model. The linear utility function provides sufficient flexibility to better capture people's various behavior factors. By supposing the agents are concerned with behavior factors, the authors first investigate how the factors affect the supply chain under wholesale price contract, and find that they do not influence coordination condition, but can adjust the distribution of profits. Then they extend their study to other four common contracts with a similar method and systematically demonstrate that the behavior of agents in such a linear setting has no effect on the conditions of coordinating supply chain.

How Cooperative Is ‘Cooperative Investment'?

The literature identifies the importance of cooperation in enhancing supply chain performance, but only a few papers have studied the role of cooperative investment in supply chain contracting. This article contributes to the literature of supply chain contracts by highlighting the importance of a cooperative investment in improving quality in presence of uncertainty. When the delivery of a high-quality product is uncertain and costly, the supplier may choose to deliver a less costly standard product, delivery of which is not uncertain, and hence the buyer needs to incentivize the supplier to take the risk. Using a principal-agent set-up, this article shows that incentivizing the supplier to choose the risky action of attempting delivery of the high-quality product is easier for the buyer in presence of shared cooperative investment that reduces epistemic quality uncertainty. However, the supplier passes the entire burden of investment on the buyer. The optimal investment for the buyer depends on parameters that determine effectiveness of the investment in reducing quality uncertainty.