Supply Chain Contract: Alok Raj
Supply Chain Contract: Alok Raj
Alok Raj
Demand=N(µ=32000, σ=11000)
Unit cost =$10.9/jersey
Unit selling price= $24/jersey
cs = 24 − 10.9 = $13.1; ce = $10.9
CR= 13.1
24 = 0.5458
Q ∗ = 32000 + NORM.S.INV (CR) × 11000 = 33210
What about expected profit that Reebok will earn?
π(Q) = px + g (Q − x) − cQ for x ≤ Q
(1)
= pQ − B(x − Q) − cQ for x ≥ Q
0.2 0.19
0.15
0.11 0.11
9.5 · 10−2
0.1
8000 10000 12000 14000 16000 18000
Unit Sales
Alok Raj (XLRI) SCM July 27, 2021 9 / 20
Swimsuit Production-Data
X f (x) Σf (x)
8000 0.11 0.11
10000 0.11 0.22
12000 0.275 0.495
14000 0.225 0.720
16000 0.185 0.905
18000 0.95 1
µ = 13000 Σxf (x) = 13100
What are the expected optimal profits and order quantities for the
supplier, the retailer and the system?
Decentralized case
The retailer faces uncertain demand X with cumulative distribution
function FX and density function fX .
The retailer orders q (a decision variable) units from the supplier at
wholesale price w.
The retailer sells at retail price p per unit to customers.
The salvage price is g at the end of selling season.
w = 80 min(x, Q)
Supplier Buyer
c = 35 p = 125 s = 20
45
Cs = 125 − 80 = 45, Ce = 80 − 20 = 60, CR = 45+60 = 0.4285
From the table it lies between 10000,12000. We will take the
maximum. So Q ∗ =12000.
p(c−g )
b = ( p−g
p−c ) × w − p−c
c = $35;w = $80; p = $125; g = $20
Based on above values we can find the relationship between b and w
b = 1.167w − 20.833
w 40 60 80 100 120 125
b 28.83 49.17 72.50 95.83 119.17 125
Q ∗ = 16000; Expected Retailer’s profit=929625; Expected Supplier’s
profit=85925; Total supply chain profit=1015550(Refer Excel)
Issues
Supplier needs to develop effective logistics system to collect the items.
In case of competing products, retailer may put effort to sell those
products which are not under buy-back contract.
The supplier charges the retailer at a lower wholesale price w per unit
purchased, and the retailer gives 1 − R percent of his revenue to the
supplier.
The contract is specified by three parameters (q; w ; R) where
0<R<1
How to choose w and R to maximise the order quantity
cs Rp−w
CR(Buy − back contract) = cs +ce = Rp−w +w −g
cs Rp−c
CR(Centralised) = cs +ce = Rp−c+c−g
CR(Revenue sharing contract) = CR(Centralised)
p−g g (p−c)
R= p(c−g ) ×w − p(c−g )
p−g g (p−c)
R= p(c−g ) ×w − p(c−g )
c = $35;w = $80; p = $125; g = $20
Based on above values we can find the relationship between R and w
R = 0.056w − 0.96
w 40 35 30 25 20 15
R 1.25 1 0.72 0.44 0.16 -0.12
Q ∗ = 16000; Expected Retailer’s profit=507775; Expected Supplier’s
profit=507775; Total supply chain profit=1015550(Refer Excel)
Issues
Supplier needs to monitor buyer’s revenue-administrative costs.
In case of competing products, retailer may put effort to sell those
products which have higher profit margin.