Channel Coordination Under Generalized Transportation Costs
by
Aysegul
Toptal
Texas A&M University
In this study, we analyze
the channel coordination problem between a buyer and a vendor considering a
general replenishment cost
structure that includes a fixed setup cost as well as a stepwise freight cost.
We study the corresponding single-period, i.e., Newsboy,
problem. Due to the nonrecurring nature of the Newsboy problem, vendor's
replenishment quantity is determined by the buyer's order
quantity. Hence, there are opportunities for the vendor to achieve substantial
savings from transportation costs by using an appropriate
pricing schedule to influence the buyer's ordering behavior. For this problem,
we prove that the vendor's expected profits are not increasing
in buyer's order quantity. Using this nontraditional result, we identify the
cases where the vendor can increase his/her profits either by
decreasing or increasing the buyer's order quantity. We prove several useful
properties of the expected profit functions in the centralized
and decentralized solutions of the problem, and we utilize these properties to
develop novel pricing schemes which can be used by the
vendor to influence the buyer's order quantity.