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A Quantitative Model for Supplier-Buyer's Profit Sharing and Pricing Policies Based on Supply Chain Partnerships  

Cho Geon (전남대학교 경영학부, 경영연구소)
So Soon-hoo (전남대학교 콜센터산업연구소)
Publication Information
Journal of the Korean Operations Research and Management Science Society / v.31, no.1, 2006 , pp. 73-82 More about this Journal
Abstract
Supply chain management (SCM) has been regarded as one of the most critical issues in the current business environment. Moreover, supply chain partnerships between suppliers and buyers in SCM have had a significant impact on supply chain performance. In this paper, we conduct a quantitative analysis for supplier-buyer's profit sharing and pricing policies based on supply chain partnerships. For this purpose, we assume that a two echelon supply chain with a single supplier and a single buyer is given and the buyer faces deterministic demand which is not only a function of buyer's selling price, but also strictly decreasing, concave, and twice differentiable function. Then we will prove the following. Firstly, without supply chain partnerships, there exist supplier and buyer's selling prices per unit such that their total profits are maximized, under the assumption that buyer's order quantity is exactly equal to the demand buyer faced. Secondly, buyer's selling price per unit which maximizes supply chain's total profit with supply chain partnerships is lower than buyer's selling price per unit which maximizes buyer's total profit without supply chain partnerships. Thirdly, given supplier's selling price per unit. buyer's total profit without supply chain part nerships is greater than that with supply chain partnerships, whereas the opposite case happens for supplier's total profit. Finally, there exists supplier's selling price per unit which makes the maximum total profits for both supplier and buyer with supply chain partnerships greater than those obtained for any given supplier's selling price per unit without supply chain partnerships.
Keywords
Supply Chain Management; Supply Chain Partnership; Two Echelon Supply Chain; Profit Sharing; Pricing Policy;
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