A Study On Drop-shipping Channel Of Supply Chains Under Electronic Business Environment

Order fulfillment is regarded as one of the weakest links in e-commerce. Due to the fast pace of the Internet and the growing expectations for timely service, consumers are no longer willing to wait several weeks or months to have their orders fulfilled. Internet retailers are struggling with this pace, dealing with timely deliveries and in-stock issues. As Internet retailers strive to meet these growing expectations, they are increasingly exploring alternative strategies for fulfilling customer orders. One approach to order fulfillment that is becoming more and more common in today's Internet retailing is drop-shipping channel.This dissertation studies drop-shipping channel fundamentally with some innovative perspectives, including drop-shipping channel choice, decision-making of channel members and competition between drop-shipping channel and other channels. Details are as follows:(1) Under one-to-one supply chain environment, the supplier's and retailer's drop-shipping channel choices are studied. The optimal decisions of supplier and retailer in traditional channel and drop-shipping channel are given respectively. By comparing these two channels, we find that transferring demand-uncertainty risk from retailer to supplier does not necessarily lead to higher expected payoff for retailer or a lower one for supplier. Sometimes, even if supply chain total expected payoff is smaller in drop-shipping channel than in the traditional channel, it is still possible for them to achieve Pareto improving payoffs by adopting drop-shipping channel, provided that risk sharing is allowed.(2) When suppliers compete with each other, we develop a channel game model. In each model setting, we characterize optimal decisions when each firm has a fixed channel structure (traditional channel or traditional and drop-shipping channel). Based on that, we derive the equilibrium channel structure. Our findings provide systematic answers to questions regarding the value of drop-shipping as a competitive weapon. When drop-shipping effectiveness factor is bigger than 1 and some suppliers don't provide drop-shipping channel, the ones who provide drop-shipping channel will get higher payoff while the others get lower payoff. In equilibrium, all suppliers provide drop-shipping channel. (3) When retailers compete with each other based on retail price and supplier's capacity, the coordination problems in drop-shipping channel are studied. We find that wholesale price contract, buy back contract, profit sharing contract can't coordinate supply chain any more. The combination of linear wholesale price contract and inventory cost sharing contract are provided to coordinate drop-shipping supply chain. Under inventory cost sharing contract, the supplier share a part of retailer's understock cost, while the retailer share a part of supplier's overstock cost.(4) When supplier and retailer cooperate in promotion, the Stackelberg game model is developed and the single-stage and multi-stage Stackelberg equilibriums are obtained. We find that multi-stage game has better coordination efficiency than single-stage through comparing the results of single-stage and multi-stage. When drop-shipping markup is big, the supplier should share a part of retailer's promotion fees; when drop-shipping markup is small, it is not necessary for supplier to share the retailer's promotion fees any more.(5) When free riding exists between channels, the competition between Internet direct channel and drop-shipping channel is studied. We find that providing Internet direct channel does not necessarily lead to lower expected payoff for Internet retailer, it depends on the effect of drop-shipping channel free ride on Internet direct channel. When the effect is good, the retailer can achieve higher payoff. Of course, the supplier always achieves higher payoff by providing Internet direct channel.(6) The generalized ARIMA demand model is developed under drop-shipping channel. Based on this model, future demand is forecasted and bullwhip effect is quantified under order-up-to inventory management approach and MRP based inventory management approach. Simulation modeling is used to compare these two inventory management approaches. The results show that MRP based approach gives smaller bullwhip effect than the traditional order-up-to approach, while providing comparable inventory performance.