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Supply Chain Management of Fresh Products with Producer Transportation

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  • The authors are grateful to the senior editor, the associate editor, and the two anonymous referees for their valuable comments, which have significantly improved this article. The authors also thank Professor David J. Robb for his important comments on various drafts of this article. The work of Yongbo Xiao was partly supported by the National Natural Science Foundation of China (NSFC), under grants 70601017 and 71071083, and the Ministry of Education, People’s Republic of China, through the Project of the Key Research Institute of Humanities and Social Sciences in Universities, under grant 11JJD630004, and Research Center for Healthcare Management, SEM, Tsinghua University. The work of Jian Chen was partly supported by the National Natural Science Foundation of China (NSFC), under grant 70890082, and Tsinghua University Initiative Scientific Research Program, under grant 20101081741.

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ABSTRACT

This article considers a class of fresh-product supply chains in which products need to be transported by the upstream producer from a production base to a distant retail market. Due to high perishablility a portion of the products being shipped may decay during transportation, and therefore, become unsaleable. We consider a supply chain consisting of a single producer and a single distributor, and investigate two commonly adopted business models: (i) In the “pull” model, the distributor places an order, then the producer determines the shipping quantity, taking into account potential product decay during transportation, and transports the products to the destination market of the distributor; (ii) In the “push” model, the producer ships a batch of products to a distant wholesale market, and then the distributor purchases and resells to end customers. By considering a price-sensitive end-customer demand, we investigate the optimal decisions for supply chain members, including order quantity, shipping quantity, and retail price. Our research shows that both the producer and distributor (and thus the supply chain) will perform better if the pull model is adopted. To improve the supply chain performance, we propose a fixed inventory-plus factor (FIPF) strategy, in which the producer announces a pre-determined inventory-plus factor and the distributor compensates the producer for any surplus inventory that would otherwise be wasted. We show that this strategy is a Pareto improvement over the pull and push models for both parties. Finally, numerical experiments are conducted, which reveal some interesting managerial insights on the comparison between different business models.

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