Given Data STEP: 1

Demand (q) Probability (x) Cumulative Probability (X)

30 0.05 0.05
31 0.1 0.15
32 0.15 0.3
33 0.2 0.5
34 0.2 0.7
35 0.15 0.85
36 0.1 0.95
37 0.05 1
STEP: 3
Intermediate Table for Optimal Order Qty Calculation Demand
0.05 0 0 30
0.15 0 0 31
0.3 0 0 32
0.5 0 0 33

0.7 1 1 34
0.85 1 2 35
0.95 1 3 36
1 1 4 37

Introducing Reservation Profit Argument

Supplier's Profit 100
Buyer's Profit 50

STEP: 8 α (min) 0.308641975

α (max) 0.382716049
Given Data STEP: 5
Price(p) 10 Sales Overstock
Cost (c ) 5 30 4
Salvage Value (s) 2 31 3
STEP: 2 32 2
Critical Fractile (Centralized SC) 0.625 p-c/p-s 33 1
STEP: 4 34 0
Order quantity (q*) 34 34 0
Centralized SC Profit 162 34 0
34 0
STEP: 6
Expected Sales 33
Expected Overstock 1
Expected Understock 0.5
STEP: 7 => Buyback Contract Analysis
w = p - α*(p - c)

(w-c)*q
-b*OS
b = p - α*(p - s) + s*OS
α w b Critical Fractile (Decentralized SC) Supplier's Profit
0.1 9.5 9.2 0.625 145.8
0.2 9 8.4 0.625 129.6
0.3 8.5 7.6 0.625 113.4
0.4 8 6.8 0.625 97.2
0.5 7.5 6 0.625 81
0.6 7 5.2 0.625 64.8
0.7 6.5 4.4 0.625 48.6
0.8 6 3.6 0.625 32.4
0.9 5.5 2.8 0.625 16.2

STEP: 9 => Buyback Contract Analysis (with Reservation Profit)

α w b Critical Fractile (Decentralized SC) Supplier's Profit
0.31 8.45 7.52 0.625 111.78
0.32 8.4 7.44 0.625 110.16
0.33 8.35 7.36 0.625 108.54
0.34 8.3 7.28 0.625 106.92
0.35 8.25 7.2 0.625 105.3
0.36 8.2 7.12 0.625 103.68
0.37 8.15 7.04 0.625 102.06
0.38 8.1 6.96 0.625 100.44
Understock
0
0
0
0
0
1
2
3

(-w*q+
p*Sales+
b*OS)
Buyer's Profit Total SC profit
16.2 162
32.4 162
48.6 162
64.8 162
81 162
97.2 162
113.4 162
129.6 162
145.8 162

Buyer's Profit Total SC profit

50.22 162
51.84 162
53.46 162
55.08 162
56.7 162
58.32 162
59.94 162
61.56 162
YEAR: 1
Given Data STEP: 1
Demand (q) Probability (x) Cumulative Probability (X)
30 0.05 0.05
31 0.1 0.15
32 0.15 0.3
33 0.2 0.5
34 0.2 0.7
35 0.15 0.85
36 0.1 0.95
37 0.05 1
STEP: 3
Intermediate Table for Optimal Order Qty Calculation Demand
0.05 0 0 30
0.15 0 0 31
0.3 0 0 32
0.5 0 0 33
0.7 1 1 34
0.85 1 2 35
0.95 1 3 36
1 1 4 37

YEAR: 2
Given Data STEP: 1
Demand (q) Probability (x) Cumulative Probability (X)
28 0.025 0.025
29 0.075 0.1
30 0.125 0.225
31 0.275 0.5
32 0.275 0.775
33 0.125 0.9
34 0.075 0.975
35 0.025 1
STEP: 3
Intermediate Table for Optimal Order Qty Calculation Demand
0.025 0 0 28
0.1 0 0 29
0.225 0 0 30
0.5 0 0 31
0.775 1 1 32
0.9 1 2 33
0.975 1 3 34
1 1 4 35
 Design of Mixed Contract
Assumption:Order Qty is taken as the starting point

STEP 1 p1 10
q1* 34
p2 12
q2* 32

STEP 3 a 44
STEP 2 b 1
Price-Setting Secnario Price-Taking Scenario
p* 24.5 Year 1 Det. Profit 170
q* 19.5 Year 2 Det. Profit 224
Profit 380.25

Reservation Profit of Buyer 50

Reservation Profit of Supplier 100

Year 1 Order Qty 34

w 8.5294217647
b 7.6470748235
Det. Profit 120.00034
Det. Profit 49.99966
Given Data STEP: 5
Price(p) 10 Sales Overstock
Cost (c ) 5 30 4
Salvage Value (s) 2 31 3
STEP: 2 32 2
Critical Fractile (Centralized SC) 0.625 33 1
STEP: 4 34 0
Order quantity (q*) 34 34 0
Centralized SC Profit 162 34 0
34 0
STEP: 6
Expected Sales 33
Expected Overstock 1
Expected Understock 0.5
Buyback Contract Analysis
w = p - α*(p - c)
b = p - α*(p - s)
α w b Critical Fractile (Decentralized SC) Supplier's Profit
0.25 8.75 8 0.625 121.5
0.5 7.5 6 0.625 81
0.75 6.25 4 0.625 40.5
0.85 5.75 3.2 0.625 24.3
0.95 5.25 2.4 0.625 8.1

Given Data STEP: 5

Price(p) 12 Sales Overstock
Cost (c ) 5 28 4
Salvage Value (s) 2 29 3
STEP: 2 30 2
Critical Fractile (Centralized SC) 0.7 31 1
STEP: 4 32 0
Order quantity (q*) 32 32 0
Centralized SC Profit 215.5 32 0
32 0
STEP: 6
Expected Sales 31.15
Expected Overstock 0.85
Expected Understock 0.35

377.5
Year 1 Stoch. Profit 162
Year 2 Stoch. Profit 215.5
Understock
0
0
0
0
0
1
2
3

Buyer's Profit Total SC profit

40.5 162
81 162
121.5 162
137.7 162
153.9 162

Understock
0
0
0
0
0
1
2
3