retailer's expectedprofite.g. Q=12000:revenue in particular demand=sale unitsx45-excess inventoryx60DemandProbabilityProfitProfit*Prob1320080000. 111200000. 1110000330000363000. 28120005400001512000. 22140005400001188000. 1854000016000972000. 11800054000054000Sum470700Retailer's Risk due to excess inventory
11 retailer’s expected profit e.g. Q=12000 : revenue in particular demand =sale units45-excess inventory60 需求量 概 率 销售利润 利 润*概 率 8000 0.11 120000 13200 10000 0.11 330000 36300 12000 0.28 540000 151200 14000 0.22 540000 118800 16000 0.18 540000 97200 18000 0.1 540000 54000 求 和 470700 Retailer’s Risk due to excess inventory Demand Probability Profit Profit*Prob. Sum
Retailer's expected profit as a function oforder quantityExpected Profit500000400000300000200000100000060008000100001200014000160001800020000OrderQuantity12
12 Retailer’s expected profit as a function of order quantity Expected Profit 0 100000 200000 300000 400000 500000 6000 8000 10000 12000 14000 16000 18000 20000 Order Quantity
manufacturer's profit* If the retailer places this order, 12000, themanufacturer's profit is=12,000(80 - 35)- 100,000 = $440,000So,Retailer's order quantity=12000 units* Retailer's expected profit= 470700$* Manufacturer's profit=440000$* Profit of the SC =910700$How to improve the both profits?13
13 • manufacturer’s profit If the retailer places this order, 12000, the manufacturer’s profit is =12,000(80 - 35) - 100,000 = $440,000 So, Retailer’s order quantity=12000 units Retailer’s expected profit= 470700$ Manufacturer’s profit=440000$ Profit of the SC =910700$ –How to improve the both profits?
4.2.2RiskSharing&supplycontracts*Riskinthesequentialsupplychain:Buyer assumes all of the risk of having more inventory thansales* Buyer limits his order quantity because of the huge financialrisk.* Suppliertakes no risk.*Supplier would likethebuyerto order as much as possible* Since the buyer limits his order quantity,there is a significantincreaseinthelikelihoodofoutofstock.Ifthesuppliersharessomeoftheriskwiththebuyer* it may be profitable for buyer to order more* reducing out of stock probability*increasingprofitforboththesupplier andthebuyer.Supplycontractsenablethisrisksharing14
4.2.2 Risk Sharing & supply contracts Risk in the sequential supply chain: Buyer assumes all of the risk of having more inventory than sales Buyer limits his order quantity because of the huge financial risk. Supplier takes no risk. Supplier would like the buyer to order as much as possible Since the buyer limits his order quantity, there is a significant increase in the likelihood of out of stock. If the supplier shares some of the risk with the buyer it may be profitable for buyer to order more reducing out of stock probability increasing profit for both the supplier and the buyer. Supply contracts enable this risk sharing 14
Types of ContractsBuy-BackContractRevenueSharingContractPay-backContractsCost-SharingContractsOtherTypesof Contracts:Quantity-FlexibilityContractsSalesRebateContracts15
15 Types of Contracts Buy-Back Contract Revenue Sharing Contract Pay-back Contracts Cost –Sharing Contracts Other Types of Contracts: Quantity-Flexibility Contracts Sales Rebate Contracts