Coordination of a two‐echelon supply chain in presence of market segmentation, credit payment, and quantity discount policies

• Published date: 01 July 2019
• Author: Mahsa Noori‐Daryan,Ata Allah Taleizadeh,Naghmeh Rabiei
• Date: 01 July 2019
• DOI: http://doi.org/10.1111/itor.12618

Intl. Trans. in Op. Res. 26 (2019) 1576–1605

DOI: 10.1111/itor.12618

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Coordination of a two-echelon supply chain in presence

of market segmentation, credit payment, and quantity

discount policies

Ata Allah Taleizadeha, Naghmeh Rabieiband Mahsa Noori-Daryana

aSchool of Industrial Engineering, College of Engineering, University of Tehran, Tehran11155-4563, Iran

bDepartment of Industrial Engineering, South Tehran Branch, Islamic Azad University, Tehran, Iran

E-mail: taleizadeh@ut.ac.ir [Taleizadeh];naghmeh724rbk@gmail.com [Rabiei];

m.nooridaryan@ut.ac.ir [Noori-Daryan]

Received 27 March 2018; receivedin revised form 1 November 2018; accepted 12 November 2018

Abstract

In today’s competitive business markets, a revenue optimization method is always one of the most crucial

issues ahead of commercial supply chains so that it is utilized by the managers to improve their profitability.

On the other hand, enhancing coordination and collaborationbetween the chains’ members has taken a vital

role in increasing their efficiency and profitability. Thus, managers tend to employ/design marketing and

coordinating incentive mechanisms using the revenue optimization method, as the most influential tools, to

motivate the purchasersto order more and subsequently increase their market share. Here,this issue is studied

in a two-echelon supply chain by designing incentivecontracts in order to evaluate the profit of organizations

and enterprises and assess the best contract, which causes the highest profit,as the main goal of the businesses.

In this study, a pricing-inventory model is developed for a single-item two-echelon supply chain consisting

of a manufacturer and a retailer in the presence of three different scenarios. In the first scenario, a credit

payment (delay-in-payment) contract is considered between the chain members. In the second scenario, we

studied a market segmentation policy in which the market demand is divided into price and quality oriented

customers’ demand while a quantity discount contract is assumed as the third one. The profit of supply chain

under these new conditions is computed by some numerical examples and then the effectsof cost parameters

on the decision variables and the profit are analyzed.

Keywords:pricing; market segmentation; delay-in-payment; quantity discount; quality; supply chain

1. Introduction and literature review

In this section, first, an introduction of main streams is presented and the motivation of this study

is stated. Then, related literature is reviewed to show the gap in research.

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2018 The Authors.

International Transactionsin Operational Research C

2018 International Federation ofOperational Research Societies

Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148,

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A. A. Taleizadeh et al. / Intl. Trans. in Op. Res.26 (2019) 1576–1605 1577

1.1. Background and motivation

Considering the fact that companies and businesses are strenuously competing and struggling

to survive in this competitive atmosphere, employing new techniques and policies can be useful

for them to stay one step ahead of their rivals and be able to follow their goals. Designing

and utilizing contracts is one tried and tested means to help managers to accomplish their

plans. Hence, in this study not only are coordinating contracts applied, but also those that are

designed to show that managers can adjust contract parameters based on their own loss and

profit.

Although there are many effective contracts, in this study, we try to employsome contracts, which

are practical for all members faced with lack of liquidity or high inflationrate. Therefore,these three

contracts are employed: delay in payment, market segmentation, and quantity discount. Here, the

attractive and convincing contracts are considered to encourage members of supply chains in order

to use these contracts in their businesses. Under delay in payment contracts, manufacturers and

retailers who encounter financial problems can help each other to increase their profitability. The

manufacturer, by proposing this contract to the retailer, can increase the sales rate. On the other

hand, the retailer does not have to pay the selling costs at that moment and can delay payments.

In market segmentation the manufacturer and the retailer are aware that they have to satisfy two

groups of customers and all customers cannot afford to buy all kinds of products. Therefore, under

this contract they not only meet both groups’ demands but also raise the sales rate and profitability.

And in the last scenario, quantity discount is employed to show that manufacturers and retailers

can achieve profit even with financial problems, because the manufacturer can increase the sales

rate and the retailer can pay the purchasing costs at lower prices. As mentioned above, by using

incentive contracts, partners can help each other to improve their performance and reduce their

costs, especially in challenging and critical circumstances.

1.2. Litera ture review

Maximizing profits or minimizing costs as the main purpose of organizations and business compa-

nies is the most important factor in increasing competition among firms and supply chains so that

organizations and companies in competitive business ceaselessly try to extend their activities and

also increase their profit byapplying different strategies of inventory, manufacturing,and marketing.

For example, Sarkar (2012) reviewedan Economic Manufacturing Quantity (EMQ) model in which

the demand rate depends on advertising and price. In this model, the effect of inflation was studied

and costs of development, material, and production are used as reliability parameters. Taleizadeh

et al. (2015) studied a three-level supply chain: a distributor, a manufacturer, and a retailer and

they determined the selling prices of the supplier, the distributor, and the retailer. Therefore, the

total profit of each member was optimized. Taleizadeh and Noori-Daryan (2015a) developed their

model in a three-echelon supply chain containing multiple suppliers, a manufacturer, and multiple

retailers producing multiple items under decentralized structures. They also optimized the chain’s

profit under these two structures. In addition to this research, they considered a three-level supply

network and they minimized total costs of the chain by applying a Stackelberg–Nash equilibrium

(Taleizadeh and Noori-Daryan, 2015b).

C

2018 The Authors.

International Transactionsin Operational Research C

2018 International Federation of OperationalResearch Societies