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Mathematical Problems in Engineering
Volume 2013 (2013), Article ID 308187, 11 pages
http://dx.doi.org/10.1155/2013/308187
Research Article

Coordination Scheme for Restructuring Business Operation of the Single Period Newsvendor Problem

Department of Industrial Engineering and Management, Yuan-Ze University, 135 Yuan-Tung Road, Chung-Li 320, Taiwan

Received 3 July 2013; Revised 13 September 2013; Accepted 27 September 2013

Academic Editor: Yi-Chung Hu

Copyright © 2013 Chiuh-Cheng Chyu and I-Ping Huang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper presents a coordination scheme for a single period newsvendor problem when both supplier and retailer of the supply chain agree to change the business operation from a market decision power sharing system (Model 1) to a unique decision maker system (Model 2). The supplier is assumed to be a risk-averse decision maker and he will undertake the product quality risk in both models. Model 1 is game theoretic, where the supplier controls the wholesale price, but the retailer controls the order quantity and market price. The bargaining process ends when the supplier has found a wholesale price that maximizes the value of his sales revenue minus the product quality cost. Model 2 is a centralized system where the supplier possesses all decision powers of the market. In general, Model 2 will generate higher total revenue than Model 1. The aim of this research is to propose a satisfying compromise based on consignment policy to resolve the revenue-sharing conflict in Model 2 due to the additional revenue. An example is provided to illustrate the two models and the proposed coordination scheme, along with managerial insights on the models’ benefits. The impacts of several parameters on the scheme are also presented and discussed.