Title: The impact of online sales on centralised and decentralised dual-channel supply chains

Authors: Ilkyeong Moon; S.P. Sarmah; S. Saha

Addresses: Department of Industrial Engineering, Seoul National University, Seoul 08826, Korea; Institute for Industrial Systems Innovation, Seoul 08826, Korea ' Department of Industrial and Systems Engineering, IIT, Kharagpur 721302, India ' Department of Industrial Engineering, Seoul National University, Seoul 08826, Korea

Abstract: This paper studies a supply chain structure featuring two different types of distribution channels through which manufacturers sell products. The centralised and decentralised distribution channels considered in this study are affected by online sales outside the structured channels. In the centralised distribution channel, two retail stores located in geographically distinct markets are operated by a single owner. In the decentralised distribution channel, two retailers independently operate two retail stores. In the non-cooperative scenario, the manufacturer always prefers the decentralised distribution channel irrespective of whether an online channel is used. To achieve channel coordination, a revenue-sharing contract is applied, but it can be used to coordinate only the decentralised distribution system. Therefore, a modified revenue-sharing contract is proposed to coordinate the centralised distribution system. The analytical study reveals that without coordination among the channel members, the manufacturer always earns maximum profit in decentralised distribution systems. However, if the supply chain is coordinated, then the manufacturer receives more benefits from using the centralised distribution systems under certain conditions. Propositions are presented to describe the characteristics of distribution structures, and to provide meaningful management guidelines for coordinating them. Extensive numerical investigations are also presented. [Received 20 January 2016; Revised 13 December 2016, 9 March, 4 August 2017; Accepted 25 September 2017]

Keywords: supply chain management; dual-channel supply chain; revenue sharing contract; pricing strategy; stackelberg game.

DOI: 10.1504/EJIE.2018.089887

European Journal of Industrial Engineering, 2018 Vol.12 No.1, pp.67 - 92

Published online: 14 Feb 2018 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article