Dual-Channel Supply Chain

Abstract

The rapid technological developments that have been witnessing over the past decade offer manufacturers the option to sell their products directly to customers through ecommerce. This paper analyzes a dual-channel supply chain. The first channel is the standard retail channel in which the retailer sells the manufacturer’s non-customized product(s) to customers. Whereas in the second channel, the manufacturer is selling customized products directly through an online channel. The customized products consist of the standard product along with assembled multiple parts, rendering it a different version. Two models are evaluated based on a constant and linearly price and lead-time dependent demand. The first model solves for the optimal ordering quantities for the basic product and the customizing features. As for the second model, the objective is to find the optimal pricing strategies for both, the basic product, and the customizing features, while holding the ordering policy constant. A third model was solved numerically to find a local optimal solution having both the ordering and pricing policies as decision variables. Finally, a sensitivity analysis study was conducted to the model’s key input parameter to understand its behavior resulting in some interesting managerial insights.