Supply chain contracting coordination for fresh products with fresh-keeping effort

Abstract

Purpose

Fresh product loss rates in supply chain operations are particularly high due to the nature of perishable products. The purpose of this paper is to maximize profit through the contract between retailer and supplier. The optimized prices for the retailer and the supplier, taking the fresh-keeping effort into consideration, are derived.

Design/methodology/approach

To address this issue, the authors consider a two-echelon supply chain consisting of a retailer and a supplier (i.e. wholesaler) for two scenarios: centralized and decentralized decision making. The authors start from investigating the optimal decision in the centralized supply chain and then comparing the results with those of the decentralized decision. Meanwhile, a fresh-keeping cost-sharing contract and a fresh-keeping cost- and revenue-sharing contract are designed. Numerical examples are provided, and managerial insights are discussed at the end.

Findings

The results show that the centralized decision is more profitable than the decentralized decision; a fresh product supply chain (FPSC) can only be coordinated through a fresh-keeping cost- and revenue-sharing contract; the optimal retail price, wholesale price and fresh-keeping effort can all be achieved; and the profit of a FPSC is positively related to consumers’ sensitivity to freshness and negatively correlated with their sensitivity to price.

Research limitations/implications

This research is based on the assumption that demand is relatively stable. It has not addressed when demand is stochastic.

Practical implications

The findings would be useful for managers in fresh food sector in terms of how to deal with suppliers in order to maximize total profit while also provide freshest food to the customers.

Originality/value

Few studies have considered fresh-keeping effort as a decision variable in the modelling of supply chain. In this paper, a mathematical model for the fresh-keeping effort and for price decisions in a supply chain is developed. In particular, fresh-keeping cost-sharing contract and revenue-sharing contract are examined simultaneously in the study of the supply chain coordination problem.

Citation

Zheng, Q., Ieromonachou, P., Fan, T. and Zhou, L. (2017), "Supply chain contracting coordination for fresh products with fresh-keeping effort", Industrial Management & Data Systems, Vol. 117 No. 3, pp. 538-559. https://doi.org/10.1108/IMDS-04-2016-0139