Evaluating Manufacturer's Wholesale Price Policy Under Order Postponement With Buyback Option

Abstract

In this article, a decentralized newsvendor model is analyzed in the presence of demand uncertainty, where the retailer wishes to postpone his ordering decision by few days until the most accurate demand information is available. The impact of such order postponement on the equilibrium profits of both manufacturer and retailer with and without a buyback contract is subsequently examined to obtain a range of wholesale prices within which the marginal profits for both manufacturer and retailer which are non-negative. Furthermore, it is observed that the possibility of implementing order postponement is higher when it is done in the presence of a buyback contract as it increases the marginal profits for both manufacturer and the retailer and expands the feasible region of wholesale price, which leads to a provision of higher flexibility for negotiation between the manufacturer and the retailer.