Isaac’s Ice Cream had been selling ice-creams in the city, now Isaac wanted to expand his market to reach summertime tourist by selling his ice-creams through small-carts along the boardwalk on 4 mile beach.
Isaac company decided to open two franchisees on the beach in 4 mile boardwalk.
Suppose that a franchisor wishes to open two ice cream parlor along a stretch of road 4-mile long.
Potential customers cluster with mile marker [MM] 0,1,2,3 & 4 and each cluster has n number of customer.
Customer demand is sensitive primarily to distance traveled by customer.
12.
Example: Location Decision of Franchisees MM 00 n customer MM 01 n customer MM 02 n customer MM 04 n customer MM 03 n customer 4 Mile Beach with n customers on each clusters 1 Mile 2 Mile 3 Mile 4 Mile Franchisee 1 Franchisee 1 Case 1 : Franchisor choosing location for both Franchisees Case 2: Two Franchisees that control their own locations Franchisee 1 Franchisee 2
13.
Two Franchisees whose locations are coordinated by Franchisor
If the franchisor can locate these franchisees anywhere on the 4-mile of the road, the franchisor will try to maximize total demand of supply chain.
Demand for franchise will be maximized when the franchise 1(F1) is located at MM1 and franchise 2(F2) is located at MM3.
14.
Two Franchisees whose locations are coordinated by Franchisor
Total demand depends on distance traveled by customer, hence, Demand D given as;
For Franchise 1 demand D 1
15.
Two Franchisees whose locations are coordinated by Franchisor
For Franchise 2 demand D 2
Total demand for Supply Chain;
16.
Two Franchisees that control their own locations
In this case, both franchisee try to maximize their own profit and demand, knowing that the other franchisee exists and reacting accordingly.
In this case best location for each one is MM2 and if both franchisees chooses MM2 then;
Isaac’s Ice Cream has grown and now selling their products over the other state through 200 retail-outlets, which are equally distributed between these two states.
In first state, Isaac company leased warehouse space near each shop.
In second state, Isaac company tried storing goods for all 100 shops in that state at a central location.
Demand of products varies from downstream to upstream in supply chain due to bullwhip effect in supply chain.
As demand of products varies in supply chain, So forecasting of demand of product also varies from downstream to upstream.
Due to lack of communication between retailers, distributor, wholesaler and supplier demand forecasting may suffer in supply chain.
32.
Example: Coordinated Demand Forecasting Wholesaler and Retailer work individually without sharing any information Table 1 Next period Forecast=Current consumer’s Demand
33.
Example: Coordinated Demand Forecasting Wholesaler and Retailer sharing consumer’s demand information Table 2
Total revenue of Supplier = 100[$490 - $90] = $40,000
(From eq. 7)
Case 1: A System with One Retailer and One Supplier
48.
Case 1: A System with One Retailer and One Supplier
Retailer also will sell same quantity as supplier’s.
Retail Price P = 900 – 2 x 100
Retail Price P * = $700
(From equation (4))
Total revenue for Retailer = 100[$700-($10+$490)]
= $20,000
Total Channel Profit = $40,000 + $ 20,000
= $ 60,000
Which is 33% lesser than coordinated pricing, Cooperative optimization produces more than independent optimization would produce.
49.
Case 2: A System with One Retailer and N-1 Supplier
Now in this case, One Retailer and N-1 Suppliers are involve.
In this, supply chain consisting of one retailer, and retailer’s supplier and retailer’s supplier’s supplier and so on.
In this case Retailer’s linear demand curve given as;
Where ( a, b>0 )
50.
Case 2: A System with One Retailer and N-1 Supplier
Now let represent the system profit under coordination pricing and represent the system profit under uncoordinated pricing.
Let C i be the marginal cost of firm i (i=1,2,3……N) and where i = 1 denotes the retailer, i = 2 denotes the retailer’s supplier and i = 3 denotes the retailer's supplier’s supplier.
51.
Case 2: A System with One Retailer and N-1 Supplier
denote the price charged by firm i.
is a decision variable and represent the quantity sold to the final customer.
represent the optimal quantity for profit maximization .
52.
Case 2: A System with One Retailer and N-1 Supplier
For Coordinated Supply Chain
If there is coordination among the N firms, all the N firms are considered as one organization,
Thus Marginal revenue;
and Marginal Cost given as;
Retail Price given as;
53.
Case 2: A System with One Retailer and N-1 Supplier
For Coordinated System, Value of eq. (12) putting in eq. (10);
So, total Profit given as;
54.
Case 2: A System with One Retailer and N-1 Supplier
From equation 13 and 14;
Total profit in coordinated Supply Chain;
55.
Case 2: A System with One Retailer and N-1 Supplier
For Uncoordinated Supply Chain
If there is no coordination among the N firms,
From eq. (11);
Price Set by m th Firm
56.
Case 2: A System with One Retailer and N-1 Supplier
Putting m=N+1;
System contain One Retailer and N-1 Suppliers therefore P N+1 =0
57.
Case 2: A System with One Retailer and N-1 Supplier
The Profit of Firm m equals;
Putting all values;
P m+1 = P m P m+1
58.
Case 2: A System with One Retailer and N-1 Supplier
From above equations;
59.
Case 2: A System with One Retailer and N-1 Supplier
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