Coordination of supply chain with advertise-setting newsvendor

Abstract

This paper investigates the coordination of a decentralized supply chain in which a single manufacturer is selling a perishable product to a single retailer facing uncertain demand affected by her adverting expenditure and having shortage penalty. When the retailer behaving as a newsvendor faces stochastic advertisement-sensitive demands, she has to make the advertising and inventory decisions before the demand is realized. First, we establish that the supply chain can not be coordinated with the buy back, revenue sharing, and target rebate and quantity flexibility contract. Next, we show quantity discount contract can coordinate the supply chain and give a special quantity discount contract. Finally, we present a contract called revenue and loss sharing contract which mitigates the effect of shortage penalty loss and coordinates the decentralized supply chain.

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