Three Essays on Supply Chain Innovation and Coordination

In recent decades, complex business environment brings more and more challenges in operations management. For instance, many supply chains face volatile customer demand, intensive competition, and higher requirements for social responsibility. To address these challenges, newly business systems/models that rely on innovative coordination contracts and other decision mechanisms have been created and implemented in practice.

In the first study, we consider a perishable inventory system with product return and remanufacturing. Due to consumers’ economical concerns and the increased environment consciousness, a firm collects the sold fresh products and then remanufacturing them into serviceable products with lower price. We show that the optimal remanufacturing policy is a modified base-stock policy and the optimal manufacturing quantity of the fresh product is decreasing in the total inventory level of the remanufactured product. Moreover, when the initial inventory level is large, the optimal manufacturing quantity asymptotically approaches a constant, which is lower and upper bounded by two newsvendor fractile solutions.

In the second study, we focus on an innovative partnership model between dairy farmers and a dairy firm. Different from the conventional business model in which farmers raise the dairy animals all on their own, in the partnership model the firm helps farmers to produce milk. We compare the members’ quantity and quality decisions under different models, as well as their profits and the supply chain performances. We also study the impact of government subsidy.

In the third research, we study a supplier using a target sales rebate (TSR) contract to manage downstream competitive retailers. A TSR contract is that if the retailer makes a sale over a target level set by the supplier, he will be rewarded with a rebate. Under the deterministic demand case, we show that, with common wholesale prices, the supplier’s profit is maximized if he offers differentiated rebates. For the random demand case, if the rebate and the target level are functions of the retail price, the supply chain can be coordinated. In equilibrium, different from the deterministic demand case, one retailer will make a positive profit while the other one earns nothing.