Coordination of competitive advertising via investing in transportation lead time reduction

Document Type: Research Paper

Authors

1 School of Industrial Engineering, Iran University of Science & Technology, Tehran, Iran

2 School of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran

Abstract

In this study, a contract for vertical and horizontal coordination is developed in which transportation mode and carbon emissions tax play a key role in determining the values of the contract parameters. The contract is designed for simultaneous coordination of cooperative advertising and periodic review replenishment decisions of a supplier and two competitive retailers. To obtain the optimal decisions, firstly, the traditional decision-making structure is modeled. After that, the centralized structure is modeled to obtain decisions that are profitable for the whole supply chain. Finally, for convincing the competitive retailers to accept the centralized decisions, the supplier applies a lead time crashing contract in which two transportation modes, i.e. fast and slow, can be used. Considering the carbon emissions tax imposed by the government, the coordination contract is designed in such a way that the supplier considers the trade-off between reducing lead time and paying tax on carbon emissions while providing enough incentives for the competitive retailers. Results of the sensitivity analyses showed that the proposed model is profitable from economic and environmental viewpoints. From environmental viewpoint, considering the carbon tax leads to a decrease in the carbon emissions that will be released by the transportation modes. From economic viewpoint, coordinating coop (cooperative) advertising and replenishment decisions of the SC members, enhances demand and provides a higher service level, which increases the SC profit. The contract is conditionally applicable under situations where the carbon emissions tax or lead time reduction costs become high.

Keywords