Channel Coordination Among a Manufacturer and a Retailer in Two-Layer Supply Chain

The purpose of the present paper is to analyze the channel coordination of a manufacturer and a retailer when demand is stochastic and dependent on the promotional effort. The manufacturer produces goods and delivers to the retailer prior the selling session. Then the retailer sells the items during the selling session. Both the members of the supply chain make their expected profits by trading off sales revenues, cost for promotional effort and discount on sales price. The optimal economic order quantity and optimal promotional effort are determined simultaneously in the proposed paper with return policy and without return policy considering stochastic nature of demand in a centralized supply chain as well as in a decentralized supply chain. An analytical solution has been obtained to determine the optimal contract parameters of the channel. The optimal solution of the problem is illustrated with the help of numerical examples. © 2017, Springer (India) Private Ltd., part of Springer Nature.