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

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.

Authors and Affiliations

Che-Tsung Tung, Kuo-Hsien Wang, Yu-Je Lee

Keywords

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  • EP ID EP162502
  • DOI 10.6007/IJARAFMS/v4-i1/697
  • Views 82
  • Downloads 0

How To Cite

Che-Tsung Tung, Kuo-Hsien Wang, Yu-Je Lee (2014). A Model and its Solution Method for a Two-Item Newsvendor Supply Chain with Return Policy and Demand Leakage. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 397-408. https://europub.co.uk./articles/-A-162502