Supplier Encroachment And Inventory Management For Dual Channels

With the rapid growth of e-commerce and logistics industry, more and more sup-pliers and retailers add direct online channels to their existing ofine retail channels.This paper focuses on studying the supplier encroachment problem and inventory man-agement problem of dual channels.Direct channels of suppliers lead to competition between the retailers and theirsuppliers, a phenomenon often referred to as“supplier encroachment”. This paperfirst studies supplier encroachment in competitive supply chains. Each supply chainis composed of a supplier and a retailer. The main results are as follows:(1) theremay exist the prisoner’s dilemma phenomenon for the suppliers, i.e., encroachmentis a dominant strategy for the suppliers, but the suppliers’ profit after encroachmentis lower than that before encroachment;(2) encroachment may lead to a “lose-lose”outcome for the suppliers and the retailers;(3) the number of the encroaching suppliersin equilibrium decreases monotonically as the marketing disadvantages of the suppliersbecome more significant.Next, we introduce retailer’s fairness concerns into the supplier encroachmentproblem in a single supply chain composed of a supplier and a retailer, and explore itsimpact on the encroachment decision of the supplier and on the retailer’s profit. Themain results are as follows:(1) encroachment may be detrimental to the supplier whenthe retailer has strong fairness concerns and a significant marketing advantage;(2) ifthe retailer has a significant marketing advantage, the retailer’s profit may decrease asher fairness concerns become much stronger;(3) through numerical illustrations, wedemonstrate that, when the retailer is fairness concerned, the supplier has more flexi-bility to encroach and the retailer has more possibility to benefit from encroachment.In the end, this paper studies the inventory management problem of dual channelsoperated by one vendor. Demands of dual channels are inventory-level-dependent. Wepropose a multi-period stochastic dynamic programming model which shows that un- der mild conditions, the myopic inventory policy is optimal for the infinite horizonproblem. To investigate the importance of capturing demand dependency on inventorylevels, we consider a heuristic where the vendor ignores demand dependency on in-ventory levels, and compare the optimal inventory levels with those recommended bythe heuristic. Through numerical examples, we show that the vendor may order lessfor dual channels than those recommended by the heuristic, and the diference betweenthe inventory levels in the two cases can be so large that the demand dependency oninventory levels cannot be neglected.