The Benefits of Vendor-Managed Delivery Contracts Under Explicit Transportation Considerations
by
Aysegul
Toptal
Bilkent University
In this research, we study a
generalization of the deterministic demand buyer-vendor coordination problem to
simultaneously consider cargo capacity constraints and general inbound/outbound
transportation costs. To this end, we first consider a replenishment cost
structure that includes a fixed cost as well as a stepwise freight cost for the
vendor. We then extend our results to consider the case where both the buyer and
the vendor are subject to this freight cost structure. For both cases, we prove
that the vendor's profit is not increasing in buyer's order quantity. Therefore,
unlike the earlier work in the area, it is not always profitable for the vendor
to encourage larger order quantities to coordinate the system. Using this
nontraditional result, we analyze different contracts, and demonstrate the
financial gain associated with different delivery arrangements. Although we take
the viewpoint of supply chain coordination and our goal is to provide insights
about the effect
of transportation considerations on the channel coordination objective and
contractual agreements, this study also contributes to the literature by
analyzing and developing efficient approaches for solving centralized and
decentralized inventory replenishment problems with stepwise freight costs