Dual-channel supply chain: A strategy to maximize profit

Abstract

The rapid pace of e-commerce development has resulted in several manufacturers selling their products online to stay competitive and increase accessibility to their products. This paper investigates the effect of adopting a dual-channel (comprised of a traditional retail channel and a direct online channel) on the performance of a two-level supply chain (manufacturer-retailer). Through this strategy, the manufacturer would like to offer customized products through a direct online channel (i.e. make-to-order), in addition to offering its standard product through the traditional retail channel (i.e. make-to-stock). The objective is to maximize the total profit of the system when this strategy is adopted. A linear demand function is used for both channels in which the demand depends on the selling prices (markup margin), the quoted delivery lead-time, and product differentiation. This investigation is compared to a benchmark scenario, where the supply chain is comprised of a single-channel strategy (retail channel only) where one type of product is offered; the standard product. In both strategies, the paper analyzes the change in the profit, markup margin and the inventory decisions that result from adopting the dual-channel strategy. The findings of this paper demonstrate that adding a customized-product online channel would increase the profit of the centralized supply chain system. However, it created a conflict due to competition between the retail and online channels. A numerical example and sensitivity analysis have been used to demonstrate this effect and to draw specific managerial insights

Optimization of Consignment-Store-Based Supply Chain with Black Hole Algorithm

“…Another topic that has received significant attention in the literature is the analysis of multilevel supply chain with consignment stores. The result of these researches showed the following advantages of using consignment stores in supply chain [18]: improved customer service through decreased reaction time on customer's demands, levelling of customer's demands, decreased inventory on the side of the supplier [19], and cost reduction [20]. The possible control processes of consignment inventory have been studied in the literature; consignment arrangements from the point of view of suppliers and retailers are discussed [21].…”

“…There has recently been an Complexity 3 increased interest in performance analysis of supply chains [1][2][3][4][5][6][7][8][9][10][11][12][13][14] and some recent analysis has been targeted specifically towards the integration of consignment stores into supply chain processes [15][16][17][18][19][20][21] and optimization with metaheuristics based on swarming algorithms [22][23][24][25][26][27][28][29][30][31][32][33][34][35][36][37][38][39][40], especially black hole optimization. Firstly, the relevant terms were defined and the initial searches were conducted.…”

Interactions of Bargaining Power and Introduction of Online Channel in Two Competing Supply Chains

“…It follows from (2) and (3) that the firstand second-order derivatives of 1 to 1 and 2 to 2 can be shown as It follows from (C.3) that is concave in , = 1, 2. Therefore, by setting (C.1) and (C.2) to zero and solving them simultaneously, we obtain (9).…”

“…Yao and Liu [3] showed that introducing an online channel not only generates competitive pricing and payoffs, but also encourages cost effective retails services. Batarfi et al [9] investigated the effect of adopting a dual channel on the performance of a two-level supply chain; their results show that adding a customized-product online channel would increase the profit of the centralized supply chain system. Huang and Swaminathan [10] and Khouja et al [11] studied the optimal pricing strategy when a retailer sells its product though an dual channel.…”

Dual-channel supply chain operations with working capital constraint: constant vs increasing marginal costs

“…The supplier's equilibrium profit can be obtained by substituting equation (5), (6) and (7) in equation (1). These are summarized in Proposition1.…”