Analysis On Separation Of Inventory And Its Ownership In The Supply Chain

Nowadays,Internet retailing has become an essential way to marketing that also brings some effects on supply chain management.Many retailers would prefer to have their suppliers deliver the goods directly to customer during the selling season as there's no limitation on inventory site,which would save their storage and other logistics cost as well.Drop-shipping is very popular in recent years.Under such strategy,the supplier not only takes charge of logistics activities including shipment to end customer,but also has to make stock level decisions before a selling season.However,this may lead to great loss for supplier due to leftovers especially perishable goods when the retailer has not enough enthusiasm or capability on sales as the supplier expected.Based on such circumstances,this paper develops a supply contract with separation of inventory and its ownership,under which the retailer makes stock level decisions while the supplier remains delivery function as in Drop-shipping.Firstly,the paper propose an inventory model with the separation mode.To encourage the retailer order more goods,we also introduce put options in this model.Then,we obtain the conditions that lead to a better payoff for the retailer and Pareto improving payoffs for both supplier and retailer through the profit comparison of separation models with newsboy model and drop-shipping model respectively.Finally,the results from the above comparison would be proved based on the profit performance with variation of several parameters.Further,we also discover that under comparison of the put option contract in the separation mode with either newsboy or Drop-shipping,when the production cost is very close to wholesale price,the supplier is more possibly to have profit risk;Under comparison of both two separation models with drop-shipping,high salvage value items may increase the risk of retailer who need not use put options at the moment.