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Applied Mathematical Modelling

Year: 2010  |  Volume: 34  |  Issue: 9  |  Page No.: 2465 - 2476

Advance order strategies: Effects on competition structure in a two-echelon supply chain

Jianhu Cai, Liping Wang, Yi Han, Gengui Zhou and Weilai Huang

Abstract

This paper considers advance order strategies in a two-echelon supply chain with one supplier and multiple buyers for seasonal products. We study how advance strategies affect the interactions between the supply chain members. In contrast to much of the literature, we specifically consider the supply chain with multiple buyers by introducing a demand function under uncertainty. Furthermore, we present two main different advance order strategies. We assume that exactly one of the multiple buyers has the ability to make an advance order before the selling season (we call this buyer the natural leader). In one strategy, the natural leader can only order products one time. The model shows that, below a threshold level of demand uncertainty, the supplier can benefit from providing adequate pricing incentives to entice the natural leader to order products before demand information is revealed. In another one, the natural leader can order products two times, we find that the supplier always can gain more profit from this advance order strategy. Our results show that the first advance order strategy is easier to control but has more strict constraint on coefficients of variation, while both two advance strategies bring more flexibility to the supply chain.

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