Supply Contracts With
Provision For Special Orders
Diwakar
Gupta (
(
Retailers
struggle to get stocking decisions right so that the supply is matched with
demand at the desired price. In reality, market and supply uncertainty often
lead to either over- or under-stocking. The former causes expensive markdowns
at the end of the selling season; the latter may affect consumer purchasing
decisions leading to sales reduction, customer dissatisfaction, potential loss
of market share, and additional backorder costs. In this research, we study the
problem of manufacturer-retailer interactions when the retailer offers to
special order items in order to improve customer service. The retailer benefits
from the special order via a reduced lost sales level. The manufacturer also
benefits on account of increased sales from the special order. We plan to
analyze different supply contracts—single versus two wholesale prices, limited
production capacity, buyback mechanisms, etc. —that offer higher flexibility to
the manufacturer or to the retailer thereby affecting the balance of power in
the channel. Finally, we plan to study the impact of competition between
manufacturers in the supply chain.