Coordination and defect management strategy for a two-level supply chain under price and sales effort-sensitive demand

Abstract

This paper presents a single-manufacturer single-retailer supply chain model with an imperfect production system at the manufacturer. The manufacturer meets the order quantity of the retailer in unequal-sized shipments. After receiving each delivery, the retailer performs an inspection process that is erroneous and results in misclassification errors (Type-I and Type-II errors). Defective items are returned to the manufacturer, who conducts a rigorous screening to classify the defective items into repairable, design-flawed and non-repairable ones. The manufacturer incurs carbon emissions cost due to transportation and disposal of scrap items to get one step closer to sustainability. Customers at the retailer are influenced by retail price and sales effort. Optimal shipment policy, pricing and inventory decisions are determined in both the decentralised (based on the Stackelberg leader-follower gaming approach) and the centralised scenarios. A trade credit mechanism and wholesale price discount contract are employed and a fair profit-sharing strategy is implemented based on the supply chain member's bargaining power. The conditions for participating in these coordination mechanisms are examined from the point of view of each supply chain member. Finally, a numerical experiment along with sensitivity analysis is carried out to illustrate the applicability of the proposed coordination mechanisms and defect management policy.

Keywords:

• Supply chain management
• imperfect production
• unequal shipments
• inspection error
• defect management
• trade credit mechanism
• wholesale price discount contract

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The authors confirm that the data supporting the findings of this study are available within the article.

Additional information

Funding

This work was supported by the Department of Science and Technology (DST), Government of India [grant number IF170698].

Notes on contributors

Anamika Dash

Anamika Dash is a Research Scholar in the Department of Mathematics, Jadavpur University, Kolkata, India. She received her M.Sc. degree in Applied Mathematics from the Vidyasagar University, West Bengal, India in 2016. Her research interests include inventory/supply chain management, sustainable supply chain management, etc.

Bibhas C. Giri

Bibhas C. Giri is a Professor in the Department of Mathematics, Jadavpur University, Kolkata, India. He did his M.S. in Mathematics and Ph.D. in Operations Research both from Jadavpur University, Kolkata, India. His research interests include inventory/supply chain management, production planning and scheduling, reliability and maintenance, and his research papers have appeared in Naval Research Logistics, International Journal of Production Research, OMEGA, Journal of the Operational Research Society, European Journal of Operational Research, International Journal of Production Economics, Journal of Cleaner Production, and other journals. He was a JSPS Research Fellow at Hiroshima University, Japan, during the period 2002–2004, Humboldt Research Fellow at Mannheim University, Germany, during the period 2007–2008 and a Fulbright-Nehru Senior Research Fellow at Louisiana State University, USA, in 2012.

Ashis Kumar Sarkar

Ashis Kumar Sarkar is a Professor in the Department of Mathematics, Jadavpur University, Kolkata, India. He received his M.S., and Ph.D. in Mathematics both from the Jadavpur University. His research interests include inventory theory, supply chain management, ecological modelling, and so on.