Inventory and pricing decisions for a dual-channel supply chain with deteriorating products

Dual-channel supply chain structure, i.e., a traditional retail channel added by an online direct channel, is widely adopted by a lot of firms, including some companies selling deteriorating products (e.g. fruits, vegetables and meats, etc.). However, few papers in literature consider deterioration property of products in dual-channel business models. In this paper, a single-retailer-single-vendor dual-channel supply chain model is studied, in which the vendor sells deteriorating products through its direct online channel and the indirect retail channel. In addition to quantity deterioration, quality of the products also drops with time and affects the demand rate in the retail channel. The pricing decisions and the inventory decisions for the two firms are simultaneously studied. Models of centralized (i.e., the two firms make decisions jointly) and decentralized (i.e., the two firms make decisions separately, vendor as the Stackelberg leader) problems are established. Proper algorithms are proposed to obtain the optimal decisions of prices, ordering frequencies and ordering quantities. The results suggest that decentralization of the supply chain not only erodes the two firms’ profit, but also incurs higher wastes comparing to that under centralization. However, a revenue sharing and two part tariff contract can coordinate the supply chain. Under utilizing the contract, each firm’s profit is improved and the total waste rate of the supply chain is reduced. It is also shown that the contract is more efficient for both firms under higher product deterioration rate. Besides, the contract is more efficient for the retailer, while less efficient for the vendor under higher quality dropping rate. In the model extension, online channel delivery time is assumed to be endogenous and linked to demands in both channels. The results show that products’ deterioration rate and quality dropping rate have significant impacts to the firms’ delivery time decisions, as well as the pricing and inventory decisions.