Two-echelon supply chain coordination with advertising-driven demand under Stackelberg game policy

Abstract

This paper develops a two-echelon supply chain model with a single manufacturer and a single retailer, where the demand is sensitive to advertising and retail price. To resolve the supply chain coordination, three strategies are introduced as retailer leader-manufacturer follower, manufacturer leader-retailer follower, and centralised supply chain. Based on these strategies, this paper suggests an optimal production rate, a production lot size, shortage level, an advertising expenditure, and retail price. Stackelberg approach is employed for solving leader-follower game to obtain the maximum profit of both manufacturer and retailer. The improved algorithm is developed to obtain the numerical results. For testing the model, this paper considers several numerical experiments, graphical illustrations, and sensitivity analysis. The result shows that the strategy of retailer leader-manufacturer follower obtains the highest profit than other strategies. [Received: 23 September 2017; Revised: 28 November 2017; Revised: 29 April 2018; Revised: 19 July 2018; Revised: 21 October 2018; Accepted: 21 October 2018]