i An update to this article is included at the end

Applied Mathematical Modelling 43 (2017) 611–629

Contents lists available at ScienceDirect

Applied Mathematical Modelling

journal homepage: www.elsevier.com/locate/apm

Optimal inventory decisions under vendor managed

inventory: Substitution effects and replenishment tactics
Jianhu Cai a,∗, Pandu R. Tadikamalla b, Jennifer Shang b, Guanghui Huang c
a
College of Economics and Management, Zhejiang University of Technology, Hangzhou 310023, PR China
b
Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260, United States
c
College of Mathematics and Statistics, Chongqing University, Chongqing 401331, PR China

a r t i c l e i n f o a b s t r a c t

Article history: This paper introduces a two-echelon supply chain that markets two substitutable brands of
Received 12 December 2015 a product with uncertain demand. The supply chain employs the vendor-managed inven-
Revised 20 October 2016
tory model wherein suppliers take responsibility to manage the inventory for the retailer.
Accepted 10 November 2016
Four inventory models are discussed in the paper. In the basic model, the two brands are
Available online 8 December 2016
supplied by two different suppliers. The optimal decisions for the supply chain are identi-
Keywords: fied and the impacts of substitution effects are discussed. Then the model is extended so
Inventory one of the suppliers can replenish his brand in the selling season. In the third model, a
Supply chain management special case is considered in which the two brands are exclusively provided by only one
Substitution supplier. At last, replenishment tactics are introduced into the model when two brands
Game theory are exclusively provided by only one supplier. We obtain optimal solutions for all models
when substitution effects are considered. Numerical examples are provided to illustrate
our findings and validate our results.
© 2016 Elsevier Inc. All rights reserved.

1. Introduction

Increasing the operating efficiency of a supply chain (SC) is no longer only an option; it is a necessity for any enterprise
to compete and to survive. SC efficiency can be improved through strong cooperative and trusting relationships between
members of the supply chain. Danese [1], Humphreys et al. [2], and Fiala [3] have addressed the impact of buyer–supplier
relationships on SC performance. In this paper, we address the situation in which customers of an SC have the option to
choose from a variety of brands due to similarities between product characteristics. Each individual supplier faces enormous
pressure because his brand can be easily replaced by other brands if his brand is out of stock. For seasonal commodities,
stockout may take place in an extreme form. For example, on June 23, 2012 in China, Dragon Boat Festival day, most super-
markets in Hangzhou ran out of Zongzi (a sticky rice dumpling) and customers were forced to purchase any brand of Zongzi
they could find. Underestimation of the demand led to a severe shortage of Zongzi, and allowed us to witness a striking
substitution effect. It is important for the retailer to choose an effective inventory-management mode when so many brands
are arranged in the same market.
It is also important for suppliers to understand how substitution effects influence inventory decisions. Our research was
motivated by a famous case in China, i.e., the competition between Wanglaoji (Firm W) and Jiaduobao (Firm J). W and J
are two famous manufacturers, who produce substitutable Chinese herbal teas. These teas have similar functions and taste,

∗
Corresponding author.
E-mail address: hzdcjh@yahoo.com (J. Cai).

http://dx.doi.org/10.1016/j.apm.2016.11.027
0307-904X/© 2016 Elsevier Inc. All rights reserved.
612 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

and are popular in summer. Thus, customers are willing and ready to substitute it if their desired brand is out of stock.
Supermarkets, restaurants, and bars are selling these two brands simultaneously to cater customer preference. The invento-
ries of most of these retailers are managed by the wholesalers of W and J, who have to determine their optimal supplies
(inventory quantities) when facing substitutable products. Similar cases can be found in other food SC. Century Mart is a
famous Hangzhou supermarket, which works seamlessly with its suppliers. Some seasonal products such as watermelons,
lychees, and moon cakes are very popular during their selling seasons. Century Mart may choose different suppliers (brands)
for each type of product under the vendor-managed inventory (VMI) operation mode. The suppliers of these brands should
consider substitution effects when determining their optimal inventory levels.
With the development of economy, brand competition is growing increasingly more severe, and substitution effects are
ubiquitous. It is thus necessary for SC to consider substitution effects when making inventory decisions. In this paper, we
focus on a special but popular inventory mode, i.e., vendor-managed inventory (VMI). We aim to help suppliers optimally
manage their inventory when facing brand substitutions. Specially, we take into account supplier’s replenishment capabili-
ties, which resemble the real-life practice of many suppliers.

2. Related literature

There are two main inventory-managed modes: retailer-managed inventory (RMI) and VMI. Many works have been con-
ducted to understand the decision situations based on RMI [4–8]. Recently, more and more retailers have delegated inven-
tory management responsibilities to vendors to focus on their core competencies in marketing. Under VMI, suppliers free
the retailer from the task of inventory management. Specially, VMI motivates suppliers to deliver products more dynamically
[9]. It is well known that VMI was pioneered by Wal-Mart and Procter & Gamble in the early 1980s. Information technolo-
gies such as electronic data interchange (EDI) and radio frequency identification (RFID) are the backbone of VMI, under
which suppliers must maintain very close relationships with the retailer to build an effective supply chain. VMI suppliers
have more accurate demand information and can better identify the optimal inventory strategy. Yu et al. [10] thought that
VMI strategy could improve the performance of the supply chain by determining more appropriate order quantities than
RMI. They presented an EOQ-based model to analyze the degree to which VMI is better than RMI in a global environment
characterized by demand uncertainty and exchange rate uncertainty. Wang [11] compared the supply chain performances
of individual firms under the traditional and VMI arrangements. They established the optimal production/inventory deci-
sions for both arrangements. Cachon [12] contrasted RMI and VMI, and found that both models are effective under certain
conditions. Hu et al. [13] compared two different consignment arrangements, in which the retailer or the vendor manages
consignment inventory programs. They showed that regardless of whether the vendor offers a return policy, it is always
beneficial for the channel to delegate the inventory decisions to the vendor. Khan [14] developed a VMI model with con-
signment stock by screening defective items. Bazan [15] found that the VMI with consignment stock allows the supply chain
to operate more economically, while Stålhane et al. [16] combined tramp shipping with a VMI service, and found substantial
profit improvement.
Similar to the applications in a traditional supply chain, various contracts are used to improve the performance of the
supply chain under VMI. Huynh and Pan [17] calculated the manufacturer’s production quantity and the retailer’s optimal
purchase price under a VMI contract. The retailer employed the VMI contract to shift the demand uncertainty to the supplier.
Wang et al. [18] studied a VMI model operated under a consignment contract with revenue sharing, in which a retailer offers
a revenue-sharing scheme, and the supplier then determines the delivery quantity and retail price of his product. They
observed that consignment with revenue sharing as a business arrangement is applied in reality and is well documented
in business textbooks. Lee et al. [19] examined VMI systems with stockout-cost sharing between a supplier and a customer.
They showed that VMI performs very well when the supplier’s reservation cost is close to the minimum supply chain total
cost of the integrated system.
Although much of VMI research focuses on one supplier and one retailer, Cai et al. [20] addressed a multi-retailer VMI
model. They emphasized competition between the retailers via a game-theoretic approach. Çetinkaya and Lee [21] consid-
ered a vendor realizing a sequence of random demands from a group of retailers located in a given geographical region.
They concluded that VMI offers a framework for synchronizing inventory and transportation decisions. Yu et al. [22] mod-
eled a Stackelberg game between a manufacturer and multiple retailers under VMI where advertising, pricing, and inventory
replenishments are all involved. Yu et al. [23] found that a VMI vendor can take advantage of the information that he ob-
tains from his multiple retailers for maximizing his profit by using a Stackelberg game. In the work of Taleizadeh et al. [24],
the vendor produces a deteriorating finished product and distributes it to its retailers in a batch-size manner to satisfy the
customers’ demands. Govindan [25] compared the performances of traditional and VMI systems by considering time-varying
stochastic demand in a two-echelon system with one vendor and multiple retailers. Hariga et al. [26] considered a SC com-
posed of a single vendor and multiple retailers operating under a VMI contract that specifies limits on retailers’ stock levels.
Sadeghi et al. [27] developed a constrained VMI model with fuzzy demand for a single-vendor multi-retailer supply chain.
Similar works also can be found in [28-31].
Several researchers consider the situation in which there are multiple vendors under VMI. Gerchak and Wang [32] stud-
ied a revenue-sharing contract in an assembly environment with VMI. They constructed a Stackelberg game between
multiple suppliers and the assembly manufacturer. Huang et al. [33] discussed a multi-product newsboy problem with
partial substitution and obtain Nash equilibrium. Mishra and Raghunathan [34] discussed the competition between two
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 613

Table 1
Main research focus.

Two suppliers (One supplier manages one brand; Brands substitutable) One supplier (Two substitutable brands)

No replenish Case I Case III

Compare VMI decisions with and without substitution. Obtain optimal VMI decisions
Replenish Case II Case IV
• Obtain optimal VMI decisions • One supplier can replenish inventory
• Obtain optimal VMI decisions • Both brands replenishable

manufacturers and one retailer. They constructed a dynamic game and compared VMI and RMI models. Their work shows
that the retailer benefits from VMI because VMI intensifies the competition between the manufacturers of competing brands.
Hong et al. [35] discussed a two-echelon distribution system composed of multiple vendors and multiple retailers in the con-
texts of traditional and VMI systems. Their work shows that VMI is more efficient than traditional supply chains when the
shortage is entirely due to lost sales. Sadeghi et al. [36] developed a VMI supply chain comprised of multiple vendors, multi-
ple retailers and a single warehouse. They calculated the order quantities along with the numbers of shipments received by
retailers and vendors. Readers are referred to Sarker [37] for VMI models that consider consignment stock in supply chain.
Unlike most of the works described above, we focus on inventory decisions for substitutable brands under VMI and
jointly consider brand substitution and replenishment tactics to address problems often encountered in real-life supply
chains. We consider a retailer selling two different brands of a product under VMI. Substitution effects and replenishment
tactics are examined in details. As the two brands are substitutable, when a desired brand is out of stock, customers may
choose the other brand. Furthermore, the supplier may replenish products during the selling season. To the best of our
knowledge, this is the first research that jointly addresses substitution and replenishment tactics in a VMI supply chain
facing newsvendor problems.
In this paper, we assume that demands follow exponential distributions. The exponential assumption simplifies the dis-
cussion, and allows us to focus on the substitution effects between two different brands. Specific demand distributions are
often employed by researchers to simplify analysis. For example, Tang et al. [38] use a normal distribution to analyze ad-
vanced booking discounts. Lau and Lau [39] assume a uniform distribution to determine a manufacturer’s pricing strategy
and return policy, as they find that an exponential distribution is too complex to address their situation. Weng [6] argues
that the exponential distribution is adequate to characterize uncertain demand.
Our goal is to help VMI suppliers to optimally make the inventory decisions in each of the following four cases (see
Table 1).
The rest of the paper is organized as follows. In Section 3, we discuss the basic VMI and analyze the substitution effects
on the two brands. Section 4 investigates the situation in which one supplier can replenish products during the selling
season, as replenishment gives the suppliers a chance to improve their competitiveness. In Section 5, we consider a special
case in which the two brands are provided by one supplier, and the supplier’s optimal inventory and replenishment tactics
are discussed. Section 6 provides numerical examples to illustrate our models and validate our findings. The summary,
conclusions, and discussion of future research directions are given in Section 7.

3. Basic VMI model with two substitutable brands

Consider a two-echelon supply chain with two suppliers and one retailer that operates under VMI. The retailer sells the
two brands of the product, and each supplier supplies one brand. Let qi and qj be the inventory quantities of brands i and
j provided by VMI suppliers i and j respectively for the selling season. Let Q = qi + qj . The demand is uncertain, and the
products are perishable and sold for only one season. Let wi and wj be the respective brands’ wholesale prices; ci and cj
denote the respective unit costs; and di and dj represent the stochastic demands for the two brands. We assume that di
and dj are independent and identically distributed (i.i.d.) across the brands. In our research, demands di and dj follow an
exponential distribution with parameter λ, given by f(x)=λe−λx , x ≥ 0. Thus the mean demand of di or dj is μ = 1/λ. Fi (x)
and Fj (y) are the cumulative distribution functions, and fi (x) and fj (y) are the density functions. In fact, the total demand of
both brands, D = di + dj , is also exponentially distributed. We denote fD (x) as its density function and FD (x) as its cumulative
distribution function. Suppliers i and j will each face corresponding stockout costs ki and kj for unmet demands. E[·] is the
function for the expected value. To simplify the analysis, we assume that the two brands have the same retail price p and
that the following equalities hold: (i) ki = kj = k; (ii) wi = wj = w; and (iii) ci = cj = c. A list of notation used in the basic model
can be found in Table 2.

3.1. Optimal SC inventory decisions under VMI without substitution

We first consider a simple decision situation in which each supplier manages his own inventory without considering
brand substitution. This is a classical newsvendor model, and the expected profit for supplier i is:
614 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

Table 2
Main notations used in the basic model.

wi = wj = w Wholesale prices; D = di + dj Total demand of the two brands

ci = cj = c Production costs; f D (x) Density functions of D;
di , dj Stochastic demands of brand i, j; FD (x) Cumulative distribution function of D;
Fi (x),Fj (y) Cumulative distribution functions of di , dj ; fi (x),fj (y) Density functions of di , dj ;
ki = kj = k Unit stockout costs for unmet demand; μ Mean value of di or dj ;

f(x, y) Joint density function of di and dj ;

Jsi (qi ),Jsj (qj ) Expected profits of supplier i, j without substitution;
Jr Retailer’s expected profit without substitution;
i , j Additional demands of brand i and j due to substitution;
Sj
LSi
1 , L1 Supplier i and j’sexpected sales quantities considering substitution;
Si1 (qi ), S1 j (q j ) Supplier i and j’sexpected profits considering substitution;
R1 Retailer’s expected profit considering substitution;

Decision variables qi , qj Inventory quantities of brand i, j;

Q Total inventory quantity of the two brands, Q = qi + qj ;
q = q j = q i Optimal inventory quantities of brand i, j without substitution;
q∗ = q∗i = q∗j Optimal inventory quantities of brand i, j considering substitution;

Jsi (qi ) = wE[min(qi , di )] − cqi − kE[(di − qi )+ ]. (1)

Because the inventory is managed by supplier i, the problem will follow a classical newsboy model. Thus, the optimal
inventory quantity q i of supplier i is given by:
w+k−c
F (qi ) = . (2)
w+k
Similarly, supplier j’s optimal inventory is q j = q i . Define q = q j = q i . Using Eq. (1), we find that the retailer’s expected
profit is:
 
Jr = ( p − w )E min(q , di ) + min(q , d j ) .

3.2. Effect of brand substitution on sales quantity

Customers often purchase a substitute if the brand they desire is not available. In particular, if the products are seasonal,
when the desired brand is out of stock the customers must decide whether to purchase an alternate brand. The example of
Zongzi and Liangcha in China reflects such a situation. This paper focuses on competition with brand substitution, indicating
that customers who plan to buy brand j will switch to brand i if brand j is out of stock, and vice versa. The supplier of the
desired brand suffers stockout costs due to lost revenue and goodwill. We assume that brand substitution does not eliminate
stockout costs, as customers feel frustrated when their first choice is not available. However, brand substitution may bring
more demand to the brand with sufficient inventory. Given stockout costs, the supplier must consider substitution effects
when making inventory decisions. There exist four demand–inventory relationships that a VMI retailer with substitutable
products may face:

(i) qi ≤ di , qj ≤ dj.
where qi and qj are the sales of brands i and j, respectively;
(ii) qi ≤ di , qj > dj.
where qi is the sales of brand i, and the sales of brand j is equal to: dj + min (di − qi , qj − dj );
(iii) qi > di , qj > dj.
where di and dj are the sales of brands i and j, respectively; and
(iv) qi > di , qj ≤ dj.
where qj is the sales of brand j, and the sales of brand i is di + min (qi − di , dj − qj ).

The surplus inventory of brand i can be used to satisfy the unmet demand of brand j if qi > di and qj ≤ dj . Combining
scenarios (i)–(iv), we find that the expected sales quantity of supplier i is:
  
1 = E [min (qi , di )] + E max min (qi − di , d j − q j ), 0
LSi . (3)
Let:
  
i = E max min(qi − di , d j − q j ), 0 , (4)
where i is the additional demand of brand i due to substitution, and i depends on the demands and the inventory
quantities of the two brands.

Proposition 1. i is increasing in qi .
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 615

The proof of Proposition 1 is provided in Appendix A.

Proposition 1 suggests that the supplier is motivated to increase his inventory quantity if he knows that the extra in-
ventory can satisfy demand from customers of the other brand. However, the supplier’s expected profit may not increase
proportionally, as higher inventories correspond to higher risk of salvage. Thus, the supplier must determine the optimal
inventory quantity by balancing increased revenue and increased inventory cost.

3.3. Optimal SC inventory decisions under VMI with substitution

We have thus far discussed the effects of brand substitution on the sales of supplier i. Similarly, the expected sales
quantity of supplier j can be expressed as:
  
LS1 j = E[min(q j , d j )] + E max min(q j − d j , di − qi ), 0 , (5)

and

1 + L1 = E[min (Q, D )].

Sj
LSi (6)

Given qi and qj , the combined expected sales quantity increase due to brand substitution is:
 
i +  j = E[min(Q, D )] − E[min(qi , di )] − E min(q j , d j )
     
= E max min(qi − di , d j − q j ), 0 + E max min(q j − d j , di − qi ), 0 . (7)

Thus both suppliers will anticipate substitution effects and change their inventory decisions accordingly. The expected
profit of supplier i becomes:

Si1 (qi ) = wLSi1 − cqi − kE[(di − qi )+ ]

  
= Jsi + wE max min(qi − di , d j − q j ), 0 . (8)

We find that:

∂ 2 Si1 (qi )
= −λe−λ(qi +q j ) [(w + k )eλq j − w + wλqi ] < 0.
∂ q2i
∂ Si
1
( qi )
=0
∂q
Thus the expected profit of supplier i is concave in qi , as is that of supplier j in qj . By solving { ∂ S j (i q ) , we can identify
1 j
=0
∂qj
the optimal inventory quantities q∗i and q∗j of suppliers i and j through the Cournot game. Define q∗ = q∗i = q∗j . The optimal
VMI supply quantity q∗ of each vendor can be found by solving:

w+k wλq∗
+ 2λq∗ = c. (9)
eλq∗ e
Proposition 2. There exists a unique positive q∗ that satisfies Eq. (9), and q∗ > q .

The proof of Proposition 2 is provided in Appendix A.

Proposition 2 suggests that under brand substitution, the supplier will supply more inventory to the retailer than in the
case of no brand substitution. The expected sales quantity of brand i or j can be expressed as:
  2q∗

1
LSi
1 = LS1 j = 2q∗ − FD (x )dx . (10)
2 0

Sj
Both suppliers will make the same amount of profit, i.e., Si 1
(q∗ ) = 1 (q∗ ). Thus, brand substitution always results in
higher inventory levels. The retailer can benefit from the substitution effect because q∗ > q , leading to higher sales volume.
The retailer’s expected profit can be expressed as R1 = ( p − w )E[min(2q∗ , D )], and R1 ≥ Jr . Brand substitution stimulates
both suppliers to increase inventory quantities, which often increases the retailer’s total sales. This explains why there are
many substitutable brands from different suppliers in large stores. It is also clear that both suppliers’ profits will increase.
This leads to the following proposition.

Proposition 3. If the brands are substitutable, both suppliers will make more profits than they would under no substitution, i.e.,
Si
1
(q∗ ) ≥ Jsi (q ) and S1 j (q∗ ) ≥ Js j (q ).

The proof of Proposition 3 is provided in Appendix A.

616 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

Table 3
Main notations used in Section 4.

c’ Replenishment cost during the selling season, which is higher than c due to expediting;
MASi Supplier i’s expected replenishment quantity if (i)supplier i has the ability to replenish products; (ii) with substitution;
(iii) w ≥ c’;
LSi
2a Supplier i’s expected sales quantity if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w ≥ c’;
Si2a (qi ) Supplier i’s expected profit if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w ≥ c’;
R2a The retailer’s expected profit if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w ≥ c’;
MBSi Supplier i’s expected replenishment quantity if (i)supplier i has the ability to replenish products; (ii) with substitution;
(iii) w + k ≥ c’ > w;
LSi
2b
Supplier i’s expected sales quantity if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w + k ≥
c’ > w;
Si2b (qi ) Supplier i’s expected profit if (i) supplier i has the ability to replenish products; (ii) with substitution; (iii) w + k ≥ c’ > w;
R2b The retailer’s expected profit if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w + k ≥ c’> w;
Decision variables qia Brand i’s optimal inventory quantity if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w ≥ c’;
qib qib is a special value of qia when qj = 0, i.e., qia = qib if qj = 0;
qic qic is a special value of qia when qj = +∞, i.e., qia = qic if qj = +∞;
qid Brand i’s optimal inventory quantity if (i)supplier i has the ability to replenish products; (ii) with substitution; (iii) w + k ≥
c’ > w;
qie qie is a special value of qid whenqj = 0, i.e., qid = qie if qj = 0;
qif qif is a special value of qid when qj = +∞, i.e., qid = qif if qj = +∞;

4. One supplier has the ability to replenish his own brand

Leading suppliers in an industry may have the advantage of adopting advanced production and information technologies.
These suppliers can replenish products during the selling season with short lead time. Facing brand competition, suppliers
are driven to modify their VMI practices in order to improve their competitiveness. In addition to demand surges, we find
that transportation breakdowns and natural disasters may also cause inventory shortages. The supplier cannot effectively
prevent all possible stockouts by increasing inventory quantity before the selling season. However, through a quick response,
they may be able to replenish the inventory in time to satisfactorily meet market demand.
In this study, we assume that supplier i has the necessary replenishment capability during the selling season, but supplier
j cannot replenish products for unmet demand. Earlier in the selling season, the actual demand for the season becomes
clearer and demand uncertainty dissipates. Supplier i can produce enough products to replenish the foreseeable unmet
demand. Denote the unit replenishment cost during the selling season by c’. We assume c’ > c, which is reasonable because
the supplier must replenish products in a very limited time. Replenishment cost includes the production and expediting
expenditures incurred per unit during the selling season. A supplier is willing to replenish products for unmet demand if
and only if w + k ≥ c’. In Sections 4.1 and 4.2, we will discuss the different cost structures that characterize the relationships
between replenishment cost, wholesale price, and stockout costs. A list of notations used in Section 4 can be found in
Table 3.

4.1. When wholesale price is higher than the replenishment cost (w ≥ c’)

Supplier i is willing to replenish brand i during the selling season. Brand j’s unmet demand can be satisfied through
substitution with brand i. However, because supplier j cannot replenish his brand during the selling season, he still faces
stockout costs. There are four possible relationships between VMI supply and customer demands:

(i) qi ≤ di , qj ≤ dj .
Supplier i will replenish brand i, and the replenishment quantity is (di − qi ) + (dj − qj ). Brand i’s sales becomes
di + (dj − qj ) and brand j’s sales is qj .
(ii) qi ≤ di , qj > dj .
Supplier i will replenish brand i, and the replenishment quantity is (di − qi ). Brand i’s sales is di and brand j’s sales is
dj .
(iii) qi > di , qj > dj .
Supplier i does not need to replenish products because the demand is less than the inventory supplied. Brand i’s sales
is di and brand j’s sales is dj .
(iv) qi > di , qj ≤ dj .
When qi − di ≥ dj − qj , supplier i does not need to replenish. Due to substitution, supplier i’s sales is di + (dj − qj ), and
supplier j’s sales is qj . Alternatively, when qi − di < dj − qj , supplier i will replenish brand i to satisfy the unmet demand
of brand j, and the replenishment quantity is (dj − qj ) − (qi − di ). Brand i’s sales is di + (dj − qj ), and brand j’s sales is qj .

From above, we find that supplier i’s total expected sales quantity is:
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 617

 + ∞  +∞
  + ∞  qj

LSi
2a = (x + y − q j ) f (x, y )dy dx + x f (x, y )dy dx
qi qj qi 0
 q i  q j   q i  + ∞ 
+ x f (x, y )dy dx + (x + y − q j ) f (x, y )dy dx. (11)
0 0 0 qj

On the other hand, because supplier i can replenish brand i for the unmet demand of both brands, and supplier j has no
ability to replenish products, supplier i’s expected sales quantity can be expressed in simple terms as:
 qj

LSi
2a = 2μ − qj − F (y )dy . (12)
0

∂ LSi
We thus use Eq. (12) to describe brand i’s sales. Taking the first derivative, we obtain ∂ q2a = − λ1q < 0. Thus supplier i’s
j e j
sales LSi
2a
is decreasing in qj . When qj = 0, we have:

2 a ( q i , q j = 0 ) = 2 μ,
LSi (13)

and when qj = +∞, we have:

2 a ( q i , q j = + ∞ ) = μ.
LSi (14)

Regardless of initial inventory, supplier i will replenish all unmet demands of both brands with brand i. Eq. (13) suggests
that brand j’s demands are satisfied by brand i if qj = 0, and Eq. (14) shows that no extra demand from substitution will take
place if qj = +∞. Supplier i’s expected replenishment quantity becomes:
 +∞
 +∞

MASi = (x + y − qi − q j ) f (x, y )dy dx
qi qj
 + ∞  q j 
+ (x − qi ) f (x, y )dy dx
qi 0
 q i  + ∞ 
+ (x + y − qi − q j ) f (x, y )dy dx. (15)
0 qi +q j −x

Thus supplier i’s expected profit is:

Si2a (qi ) = wLSi2a − cqi − c MASi . (16)

If demands di and dj are exponentially distributed with mean 1/λ, we have:

∂ 2 Si2a (qi )
= −λc e−λ(qi +q j ) (eλq j + λqi − 1 ) < 0.
∂ q2i
Thus Si (q ) is concave in qi given any positive qj . Brand i’s optimal inventory quantity qia can then be found by solving
2a i
∂ Si (q )
2a i
∂ qi = 0, i.e.,

eλq j + λqia c
= . (17)
eλ(qia +q j ) c
Proposition 4. Given any positive qj , there exists a unique positive qia satisfying Eq. (17).

The proof of Proposition 4 is provided in Appendix A.

1+λqib c
If qj = 0, supplier i’s optimal inventory quantity qib is given by = c
. If qj = +∞, supplier i’s optimal inventory quan-
eλqib
c
λ Ln ( c ).
1
tity is qic =

Proposition 5. qic < qia < qib .

The proof of Proposition 5 is provided in Appendix A.

Because supplier j has no replenishment ability and his surplus products are not used to satisfy brand i’s unmet demand
due to supplier i’s own replenishment ability, his expected profit remains Jsj (q ). The retailer can benefit from supplier i’s
replenishment ability, and obtain the following expected profit:

R2a = ( p − w )E[D]
= 2μ ( p − w ).
618 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

4.2. When replenishment cost is high and satisfies w + k ≥ c’ > w

Although unit production cost during the selling season is higher than the wholesale price, supplier i may be willing to
replenish the inventory to satisfy the unmet demand for brand i due to the concerns about stockout costs (e.g., loss of good
will). Of course, supplier i is not willing to replenish products to satisfy the unmet demand of brand j because it’s revenue
w is less than replenishment cost c’. We examine the four relationships between inventory quantity and demand as follows:

(i) qi ≤ di , qj ≤ dj .
Supplier i will replenish products for unmet demand, and the replenishment quantity is (di − qi ). Brand i’s sales is di
and brand j’s sales is qj .
(ii) qi ≤ di , qj > dj .
Supplier i will replenish products for his unmet demand, and the replenishment quantity is (di − qi ). Brand i’s sales is
di and brand j’s sales is dj .
(iii) qi > di , qj > dj .
Supplier i does not need to replenish products because there is no unmet demand. Brand i’s sales is di and brand j’s
sales is dj .
(iv) qi > di , qj ≤ dj .
Supplier i does not need to replenish products because there is no unmet demand. Brand i’s sales is di + min (qi − di ,
dj − qj ) and brand j’s sales is qj .

From (i)–(iv) above, we find that brand i’s sales is:

  
LSi
2b = μ + E max min(qi − di , d j − q j ), 0
= μ + i . (18)
When qj = 0, we have:

eλqi − 1 − λqi
i ( q i , q j = 0 ) = . (19)
λeλqi
According to Proposition 1, i is increasing in qi . Given qj = 0, i (qi ) increases from 0 to μ when qi increases from 0
to + ∞. When qj = +∞, we have i (qi , qj = +∞) = 0.
From (i)–(iv), we find that supplier i’s expected replenishment quantity is:
 +∞
MBSi = (x − qi ) f (x )dx.
qi

Supplier i’s expected profit is:

Si2b (qi ) = wLSi2b − cqi − c MBSi , (20)

and
∂ 2 Si2b (qi ) wλqi + c eλq j − w
= −λ < 0.
∂ q2i eλ ( qi +q j )
∂ Si (q )
Hence, Si (q ) is concave in qi given any non-negative qj . Let
2b i
2b i
∂ qi = 0. Next, supplier i’s optimal inventory quantity
qid is given by:

wλqid + c eλq j
= c. (21)
eλ(qid +q j )
wλqie +c
If qj = 0, supplier i’s optimal inventory quantity qie is given by = c. If qj = +∞, supplier i’s optimal inventory
eλqie
c
λ Ln ( c ). Thus, qie > qid > qif if w + k ≥ c’ > w.
1
quantity is qi f =

Proposition 6. Given any positive qj , there exists a unique positive qid satisfying Eq. (21), and qid > qia .

The proof of Proposition 6 is provided in Appendix A.

Similarly, we can show that qie > qib and qif > qic . When c’ takes different values, supplier i’s optimal decisions will also
change. A higher c’ leads to a higher inventory quantity in the beginning, as the replenishment cost is very high during the
selling season. Supplier j has no ability to replenish the products, and a surplus of brand j is not used to substitute brand i
due to supplier i’s own replenishment ability. Thus supplier j’s decision is similar to that under no substitution, with supply
quantity q and optimal expected profit Jsj (q ). The retailer’s expected profit is:
 
R2b = ( p − w ) LSi2b + E[min(q j , d j )] .
Combining Sections 4.1 and 4.2, we have the following proposition.
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 619

Table 4
Main notations used in Section 5.

S3a (qi , q j ) The supplier’s expected profit if (i) the two brands are provided by one supplier; (ii) with substitution;
R3a The retailer’s expected profit if (i) the two brands are provided by one supplier; (ii) with substitution;
MCS The supplier’s expected replenishment quantity if (i) the two brands are provided by one supplier; (ii) with
substitution; (iii) with replenishment tactics; (iv) k ≥ c’ > c;
S3b (qi , q j ) The supplier’s expected profit if (i) the two brands are provided by one supplier; (ii) with substitution; (iii) with
replenishment tactics; (iv) k ≥ c’ > c;
MDS The supplier’s expected replenishment quantity if (i) the two brands are provided by one supplier; (ii) with
substitution; (iii) with replenishment tactics; (iv) w + k ≥ c’ > Max{c, k};
S3c (qi , q j ) The supplier’s expected profit if (i) the two brands are provided by one supplier; (ii) with substitution; (iii) with
replenishment tactics; (iv) w + k ≥ c’ > Max{c, k};
Decision variables q Optimal inventory quantity of brand i, j if (i) the two brands are provided by one supplier; (ii) with substitution;
q = qih = q jh Optimal inventory quantities of brand i, j if (i) the two brands are provided by one supplier; (ii) with
substitution; (iii) with replenishment tactics; (iv) k ≥ c’ > c;
q˜ = qil = q jl Optimal inventory quantities of brand i, j if (i) the two brands are provided by one supplier; (ii) with
substitution; (iii) with replenishment tactics; (iv) w + k ≥ c’ > Max{c, k};

Proposition 7. Given w + k ≥ c’ and assuming that supplier i can replenish inventory, supplier i will gain more profit than he
would without replenishment ability, i.e., Si (q ) ≥ Si
2a ia 1
(q∗ ) and Si (q ) ≥ Si
2b id 1
( q∗ ).
The proof of Proposition 7 is provided in Appendix A.
In summary, when w ≥ c’, the retailer can benefit from supplier i’s replenishment activities, i.e., R2a ≥ R1 , where R2a is
the maximal expected profit that the retailer can possibly obtain.
When w + k ≥ c’, supplier j’s decision is the same as that discussed in Section 3, with no brand substitution. His optimal
inventory quantity is q and optimal expected profit is Jsj (q ), where Js j (q ) ≤ 1 (q∗ ). Thus, supplier j is worse off as a result
Sj

of supplier i’s replenishment capability. This is consistent with what we have found in practice. Namely, if suppliers are agile,
flexible, and responsive, e.g., having the fast replenishment ability discussed here, they will gain considerable competitive
edge and improve their profit margin.

5. A special case: the two brands are provided by one supplier

From the above discussion, we found that supplier j is not sustainable in the long run, when competing with supplier i
who can replenish during the selling season. In this study, we discuss the situation in which there is only one supplier in the
market to provide both brands i and j (for example, if supplier i acquired supplier j). The main notations used in Section 5
can be found in Table 4.
Given these assumptions, supplier i’s expected profit can be expressed as:
 
S3a (qi , q j ) = wE min {Q, D}] − c(qi + q j ) − kE[(di − qi )+ + (d j − q j )+ . (22)
∂ 2 S ( q , q ) ∂ 2 S ( q , q )
3a i j 3a i j
∂ q2 ∂ qi ∂ q j
We can show that
∂ 2 S3a (qi ,q j )
< and i > 0. Thus the Hessian matrix of S (qi , q j ) is negative defi-
∂ q2
0
∂ 2 S3a (qi ,q j ) ∂ 2 S3a (qi ,q j ) 3a
i ∂ q j ∂ qi ∂ q2

j
nite for qi and qj . The optimal inventory quantities can be found by solving:
 ∂ S ( qi ,q j )
3a
∂ qi = w + k − c − wFD (qi + q j ) − kF (qi ) = 0, (23 )
∂ S3a (qi ,q j )
∂qj = w + k − c − wFD (qi + q j ) − kF (q j ) = 0. (24 )

Defining the optimal VMI inventory supplies as qi = qj = q , we then obtain:

wFD (2q ) + kF (q ) = w + k − c. (25)

∗∗ ∗∗
Proposition 8. There exists an inventory level q∗∗ that satisfies 1 + 2q∗∗ λ = eλq . If w+k
c < eλq , then q∗∗ > q > q . If w+k
c >
∗∗ λq∗∗ , then q = q = q∗∗ .
eλq , then q∗∗ < q < q . Finally, if w+ k
c =e

The proof of Proposition 8 is provided in Appendix A.

Proposition 8 suggests that when there exists only one supplier for both brands i and j, the substitution effect leads the
supplier to choose moderate inventory quantities before the selling season. That is, when w and k are large and c is small,
q remains relatively small, with q∗∗ < q < q . Then again, when w and k are small and c is large, q” remains relatively
large, with q∗∗ > q > q .
Now let’s consider the replenishment situation. The supplier is incentivized to replenish products for any unmet demand
if w + k ≥ c’. Two cases are discussed below.
620 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

5.1. The replenishment cost is less than the stockout cost: k ≥ c’ > c

Under this cost structure, the supplier will replenish the stockout brand and will not use substitution because it’s cheaper
to replenish at cost c’ than to incur stockout cost k.

(i) qi ≤ di , qj ≤ dj .
Brand i’s sales is di , and brand j’s sales is dj . Brand i’s replenishment quantity is (di − qi ); brand j’s replenishment
quantity is (dj − qj ).
(ii) qi ≤ di , qj > dj .
Given c’ ≤ k, the supplier will always replenish to satisfy unmet demand. Thus, in this scenario, the sales of brands i
and j are di and dj , respectively, and brand i’s replenishment quantity is di − qi .
(iii) qi > di , qj > dj .
No Replenishment is needed under this scenario, and di and dj are the sales of brands i and j, respectively.
(iv) qi > di , qj ≤ dj .
The sales are di and dj , respectively. Brand j’s replenishment quantity is dj − qj .

Let MCS denote the expected replenishment quantity. From (i)–(iv) above, we find that the supplier’s expected profit is:

S3b (qi , q j ) = wE[di + d j ] − c(qi + q j ) − c MCS

 +∞
 +∞

= wE[di + d j ] − c (qi + q j ) − c [ (x + y − qi − q j ) f (x, y )dy dx]
qi qj
 + ∞  qj
  q i  + ∞ 
− c [ 
(x − qi ) f (x, y )dy dx] − c [ (y − q j ) f (x, y )dy dx]. (26)
qi 0 0 qj

The Hessian matrix of S3b (qi , q j ) is negative definite for qi and qj . Assuming that the optimal inventory quantities of
brand i and brand j are qih and qjh respectively, then qih = qjh . Let q = qih = qjh . We can find that q is given by q =

λ Ln ( c ). Although qic , qif , and qih are functions of c and c’, these optimal solutions are obtained under different regions of
1 c

c’ value.
In summary, the supplier will replenish products to satisfy any unmet demand when facing a high stockout cost and
a relatively low replenishment cost. The supplier should replenish when necessary and not depend on substitution effect
taking place. This is because k is always nonzero when the brand that customers prefer is unavailable. Brand substitution
cannot eliminate stockout cost as customers feel disappointed when their first choice is not available.

5.2. When w + k ≥ c’ > Max{k, c}.

Under this cost relationship, the supplier will use one brand’s surplus to satisfy another brand’s shortage when necessary.
If the demand of the brand is still unmet afterward, he will replenish the brand to satisfy the demand.

(i) qi ≤ di , qj ≤ dj .
The sales of products i and j are di and dj , respectively. Brand i’s replenishment quantity is (di − qi ), while brand j’s
replenishment quantity is (dj − qj ). Because both shortages are satisfied through replenishment, demands are always
met and no stockouts will take place.
(ii) qi ≤ di , qj > dj .
Because c’ > k, the supplier will first use j to substitute i in satisfying brand i’s unmet demand. If there is still unmet
demand after all of brand j’s surplus is exhausted, the supplier will replenish brand i to satisfy brand i’s unmet
demand. Thus we have:
(a) brand i’s sales is di − min {di − qi , qj − dj };
(b) brand j’s sales is dj + min {di − qi , qj − dj };
(c) brand i’s replenishment quantity is max {(di − qi ) − (qj − dj ), 0};
(d) brand i’s overall stockout cost is k min {di − qi , qj − dj }; and
(e) brand j’s stockout cost is 0.
(iii) qi > di , qj > dj .
No replenishment is needed under this scenario. The sales are di and dj for brands i and j, and neither brand faces a
stockout.
(iv) qi > di , qj ≤ dj .
In this scenario, we find:
(a) brand i’s sales is di + min {dj − qj , qi − di };
(b) brand j’s sales is dj − min {dj − qj , qi − di };
(c) brand j’s replenishment quantity is max {(dj − qj ) − (qi − di ), 0};
(d) brand i’s stockout cost is 0; and
(e) brand j’s overall stockout cost is k min {dj − qj , qi − di }.
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 621

From (i)–(iv), we find that the supplier’s expected profit is:

S3c (qi , q j ) = wE[di + d j ]

 + ∞  +∞
  q j  + ∞ 
− c (x + y − qi − q j ) f (x, y )dx dy − c (x + y − qi − q j ) f (x, y )dx dy
qj qi 0 qi +q j −y
 q i  + ∞   q j  qi +q j −y 
− c (x + y − qi − q j ) f (x, y )dy dx − k (x − qi ) f (x, y )dx dy
0 qi +q j −x 0 qi
 q j  + ∞   qi  qi +q j −x 
−k (q j − y ) f (x, y )dx dy − k (y − q j ) f (x, y )dy dx
0 qi +q j −y 0 qj

 qi  +∞ 
−k (qi − x ) f (x, y )dy dx − c(qi + q j ). (27)
0 qi +q j −x

Because the supplier will replenish both brands to satisfy unmet demand after brand substitution takes place, Eq. (27) can
be expressed as:

S3c (qi , q j ) = wE[di + d j ] − c E[(D − Q )+ ] − c(qi + q j ) − kE[(di − qi )+ + (d j − q j )+ − (D − Q )+ ].

Define MD S = E[ (D − Q )+ ], which is the supplier’s expected replenishment quantity. Let Z = E[(d − q ) + + (d − q ) +
5 i i j j
− (D − Q) + ]. Thus,

S3c (qi , q j ) = wE[di + d j ] − c MDS − c(qi + q j ) − kZ5 . (28)

∂ 2 S (q ,q ) ∂ 2 S (q ,q )
3c i j 3c i j
∂ 2 S3c (qi ,q j ) ∂ q2i ∂ qi ∂ q j

∂ 2 S3c (qi ,q j ) > 0, thus the Hessian matrix of 3c (qi , q j ) is negative
We can show that < 0 and ∂ 2 S (q ,q ) S
∂ q2i
∂ q j ∂ qi
3c i j
∂q 2
j
definite for qi and qj . The suppliers’ optimal inventory quantities can be found by solving:
 ∂ S3c (qi ,q j )
∂ qi = (c − c ) − (c − k )FD (Q ) − kF (qi ) = 0, (29 )
∂ S3c (qi ,q j )
∂qj = (c − c ) − (c − k )FD (Q ) − kF (q j ) = 0. (30 )
Thus, the optimal inventory quantities qil = q jl = q˜ are given by:

(c − k )FD (2q˜ ) + kF (q˜ ) = c − c. (31)

Proposition 9. q˜ < q , q < q .

The proof of Proposition 9 is provided in Appendix A.

Combining Sections 5.1 and 5.2, we have the following proposition.

Proposition 10. Given w + k ≥ c’ > c, both the supplier and retailer will benefit from the supplier’s replenishment ability. More-
over, S3c (q˜, q˜ ) ≥ S3a (q , q )and S3b (q , q ) ≥ S3a (q , q ).

Proof. The proof is omitted due to its simplicity.

Thus, when w + k ≥ c’ > c and replenishment is possible, the supplier’s optimal inventory quantity for each brand de-
creases and his profit increases. The retailer benefits from the supplier’s replenishment ability, and his expected profit is
R2a , which is much higher than the expected profit without replenishment. Main results are summarized in Tables 5 and 6.

Table 5
Summary of main analytical results when two brands are provided by two different suppliers.

Decision situations Supplier i’s Supplier j’s Supplier i’s profit Supplier Retailer’s Important relationships
inventory quantity inventory quantity j’s profit profit

VMI without substitution q i q j Jsi (q ) Jsj (q ) Jr 1 q∗ > q


q j = q i = q , where F (q ) = w+k−c
w+k
Jsi (q ) = Jsj (q ) 2 Si
 
1 (q ) ≥ Jsi (q );
∗

Si1 (q∗ ) S1 j (q∗ ) R1 3 1 (q∗ ) ≥ Js j (q );

 Sj
VMI with substitution q∗i q∗j
λq ∗
q∗i = q∗j = q∗ , where w+k
e λq ∗
+ w
e 2 λq ∗
=c Si1 (q∗ ) = S1 j (q∗ ) 4 R1 ≥ Jr ;

λq 
Supplier i has the w ≥ c’ qia , e λ(q+ia +λqqia) = c
c
q Si2a (qia ) Jsj (q ) R2a 1 Si
 2a (qia ) ≥ 1 (q );
Si ∗
e
ability to replenish

wλqid +c eλq
w + k ≥ c’ > w qid ,  =c q Si2b (qid ) Jsj (q ) R2b 2 Si
 (qid ) ≥ Si1 (q∗ );
eλ(qid +q ) 2b
3 R2a ≥ R1 ;

622 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

Table 6
Summary of main analytical results when two brands are provided by one supplier.

Decision situations Brand i’s inventory Brand j’s inventory Supplier’s Retailer’s Important relationships
quantity quantity profit profit

q q S3a (q , q ) R3a < eλq , q∗ ∗ > q > q ;
w+k ∗∗
VMI with substitution 
1 If c
wFD (2q ) + kF(q ) = w + k − c > eλq , q∗ ∗ < q < q ;
w+k ∗∗

2 If c
= eλq , q = q = q∗ ∗ .
w+k ∗∗

3 If c

The supplier has the k ≥ c’ > c qih qjh S3b (q , q ) R2a 1 q˜ < q ;

ability to replenish

qih = qjh = q, where q = λ1 Ln( cc ) 2 q < q ;

w + k ≥ c’ > Max{k, c} qil qjl S3c (q˜, q˜ ) 3 S3b (q , q ) ≥ S3a (q , q );

qil = q jl = q˜, where 4 S3c (q˜, q˜ ) ≥ S3a (q , q );

(c − k )FD (2q˜ ) + kF (q˜ ) = c − c

Table 7
Optimal inventory decisions with and without brand substitution.

Each brand’s inventory Total sales Supplier i’s profit Supplier j’s profit The retailer’s profit

No brand substitution 175.09 233.33 498.12 498.12 4666.66

Brand substitution 228.15 312.55 1176.58 1176.58 6251.00

Table 8
Key solutions of the supply chain under different qj given c’ = 30.

qj qia LSi
2a MASi Si2a (qia ) Jsj (q ) R2a Supply chain’s total profit

0 237.77 400 194.25 5417.21 – – –

50 193.35 355.76 192.57 4586.30 – – –
100 160.35 321.31 187.74 4012.93 – – –
150 137.25 294.47 180.90 3607.05 – – –
175.09 128.55 283.33 177.15 3447.69 498.12 80 0 0 11945.81
200 121.41 273.58 173.43 3312.03 – – –
250 110.48 257.30 166.31 3093.07 – – –
300 102.81 244.63 160.02 2928.15 – – –
+∞ 81.09 200 133.33 2378.14 – – –

6. Numerical examples

In this section we use numerical examples to derive additional insights. Assume w = 40, c = 20, k = 8, p = 60, and the
distributions of both demands di and dj are exponentially distributed with parameter λ = 1/200. We first consider the case
in which there is no brand substitution and each supplier independently manages inventory. We find that an individual
supplier’s optimal inventory is q = 175.09; and each supplier’s expected profit is Jsi (q ) = Jsj (q ) = 498.12. The supply chain’s
total expected sales quantity is min {q , di } + min {q , dj } = 233.33, and the retailer’s expected profit is Jr = 4666.66. If the
retailer sells two substitutable brands of a product, the supplier’s optimal decision will be different. We discuss this next.

6.1. Optimal SC inventory decisions under VMI with substitution (see Section 3.3)

When each supplier independently makes an inventory decision while anticipating brand substitution without replenish-
ment, we find that each supplier’s optimal inventory quantity is q∗i = q∗j = q∗ = 228.15, and the supply chain’s total sales is
+ L1 = 312.55. We verified that q∗ > q holds, validating Proposition 2, which states that substitution motivates suppliers
Sj
LSi
1
Sj
to provide higher amounts of inventory. We also find that each supplier’s expected profit is Si
1
(q∗ ) = 1 (q∗ ) = 1176.58,
so Si
1
(q∗ ) > Jsi (q ) and > Js j (q ). The combined profit from both suppliers is St
S1 j (q∗ ) 1
(q∗ ) = 2353.16, and the retailer’s
expected profit is R1 = 6251.00. Table 7 contrasts the optimal inventory decisions with and without brand substitution.

6.2. Supplier i has the ability to replenish

6.2.1. When w ≥ c’ (see Section 4.1)

Assume w = 40 and c’ = 30. Supplier i is able to replenish brand i to satisfy the unmet demand of brand i and also to
substitute i for j when necessary. Table 8 shows supplier i’s optimal inventory quantity qia under different qj . For each pair
{qj , qia }, we can find brand i’s expected sales quantity LSi
2a
, brand i’s expected replenishment quantity MASi , and supplier i’s ex-
pected profit 2a (qia ). We can also find qib = 237.77 and qic = 81.09. Because supplier j’s optimal inventory is qj = q = 175.09,
Si

supplier j’s optimal expected profit is Jsj (q ) = 498.12, and the retailer’s expected profit is R2a = 80 0 0.
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 623

Table 9
Key solutions of the supply chain under different qj givenc’ = 45.

qj qid LSi
2b
MBSi Si2b (qid ) Jsj (q ) R2b Supply chain’s total profit

0 349.75 304.35 43.67 3213.93 – – –

50 306.97 270.68 51.67 2362.50 – – –
100 272.27 247.88 57.91 1864.12 – – –
150 245.25 232.77 62.46 1595.06 – – –
175.09 234.25 227.25 64.21 1515.60 498.12 7115.98 9129.70
200 224.79 222.79 65.65 1461.42 – – –
250 209.47 216.14 67.87 1401.86 – – –
300 198.05 211.63 69.42 1380.43 – – –
+∞ 162.19 200 73.58 1445.36 – – –

500
q'
450 q''

400
Optimal inveintory quantity

350

300

250

200

150

100

50
0 5 10 15 20 25 30 35 40 45
c
Fig. 1. q and q change with production costc.

6.2.2. When w + k ≥ c’ > w ( see Section 4.2)

We assume c’ = 45, w = 40, and k = 8. Supplier i in this case is willing to replenish inventory to satisfy the unmet demand
of his own brand i due to concerns about his stockout cost, but he is not willing to replenish inventory to satisfy the unmet
demand of brand j because c’ > w. In Table 9, we find supplier i’s optimal inventory quantity qid under different qj . For
each pair {qj , qid }, we can also find the corresponding expected sales quantity LSi 2b
, expected replenishment quantity MBSi ,
and expected profit 2b (qid ) for brand i. As shown in the table, we find qie = 349.75 and qif = 162.19. Because supplier j’s
Si

optimal inventory is qj = q = 175.09, supplier j’s optimal expected profit is Jsj (q ) = 498.12, and the retailer’s expected profit
is R2b = 7115.98. From Tables 8 and 9, we can see that qid > qia given the same qj and that qie > qib and qif > qic .

6.3. The two brands are provided by one supplier

From Eq. (25), we find that the supplier’s optimal inventory for each brand is q = 193.47, and the SC’s expected sales
quantity is equal to E[min {Q, D}] = 286.31. The supplier’s expected profit is S3a = 2497.42, and that of the retailer is R3a =
∗∗
λq = 3.51. Thus, w+k < eλq . Obviously q∗∗ > q > q . Fig. 1 shows ∗∗
5726.18. We find that q∗∗ = 251.29, w+ k
c = 2.40, and e c
how q and q change with production cost c. We find that q = q = q∗∗ = 251.29 if c = 13.66, which means w+
  k λq∗∗ = 3.51.
c =e
The outcomes confirm Proposition 8.
After incorporating the replenishment tactic, we have the following main numerical results:
624 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

Fig. 2. q and MCS changes with replenishment cost c’.

Fig. 3. S3b (q , q ) changes with replenishment cost c’.

6.3.1. When k ≥ c’ > c (see Section 5.1)

We assume k = 35 and c = 20 in this section. The supplier will replenish the brand to satisfy the demand, but no substitu-
tion will take place when k is large, which means that not satisfying the demand of the exact brand has a very high punitive
cost. Fig. 2 shows that brand i’s optimal inventory quantity q increases with c’ and the expected replenishment quantity
MCS decreases with c’. Fig. 3 shows that the supplier’s expected profit S3b (q , q ) also decreases with c’. If k ≥ c’ > c, all
demand will be satisfied due to the supplier’s replenishment ability. The retailer’s expected profit is always R2a = 80 0 0.
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 625

Fig. 4. q˜, MDS , Z5 change with replenishment cost c’.

Fig. 5. S3c (q˜, q˜ ) changes with replenishment cost c’.

6.3.2. When w + k ≥ c’ > Max{k, c} (see Section 5.2)

Here we assume w = 40, k = 8, and c = 20. Thus w + k ≥ c’ > Max{k, c}means 48 ≥ c’ > 20. We find that the supplier’s
optimal inventory quantity q˜ increases with c’ from 0 to q in the region c’ ∈ [20, 48], which confirms Proposition 9. Fig.
4 shows that the supplier’s expected replenishment quantity MD S decreases with c’, and the supplier’s expected substitution

quantity Z5 increases with c’. Fig. 5 shows that the supplier’s expected profit S3c (q˜, q˜ ) also decreases with c’.
Specifically, when c’ = 45, we have q˜ = 183.01, and S3c (q˜, q˜ ) = 2851.91. When c’ = 30, we have q˜ = 109.94, and
S3c (q˜, q˜ ) = 5213.40.
Given w + k ≥ c’ > Max{k, c}, the retailer’s expected profit is always R2a = 80 0 0.
626 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

7. Conclusions and discussion

This paper considers a two-echelon supply chain selling two substitutable brands. We first establish the suppliers’ op-
timal inventory decisions and show that under brand competition, suppliers will choose higher inventory levels. Next, we
analyze the situation in which one supplier has the ability to replenish his brand during the selling season, while the other
supplier is not capable of replenishing his brand during the same season. In this situation, we find that the substitution
effects and the replenishment costs in the selling season significantly affect the replenishment decisions. Finally, we discuss
a special case in which the two brands are provided by a single supplier, which is plausible because the supplier with re-
plenishment capability could eventually dominate the market. We find that the monopolistic supplier may choose to offer a
relatively moderate quantity of inventory. The main managerial insights from this paper can be summarized as follows:

(i) After comparing the VMI models between the cases with and without substitution, we find that substitution effects
benefit the suppliers. When facing substitutable demand, suppliers should choose a higher inventory level to make
more profits.
(ii) The supplier can further increase his profit if he first obtains replenishment capability. However, the range of the
profit margin depends on the value of the unit replenishment cost. The retailer may not always benefit from the
supplier’s replenishment activities given a relatively high replenishment cost.
(iii) The supplier may choose a more moderate inventory quantity if two brands are provided by one supplier. The retailer
always benefits from the supplier’s replenishment activities.
(iv) Substitution always benefits the retailer. The retailer performs best if both brands are provided by one supplier with
replenishment capability.

Brand substitution is a common observed phenomenon in daily life. VMI suppliers must recognize such a reality when
making inventory decisions. Key findings from our research suggest that brand substitution raises an individual supplier’s
inventory quantity, which is beneficial to the retailer. We also identify the optimal replenishment policies for suppliers when
brand substitution and stockout penalties are considered. The proposed models enhance the supplier’s profit. Similarly, re-
plenishment also significantly improves retailer’s profit. The VMI suppliers must establish a quick response capability to
quickly refill products during the selling season, so as to improve customer’s service level and attain higher profit. As sup-
pliers are always concerned about the manufacturing expenses, our work has looked into the overall impact of production
costs, especially the replenishment cost, on inventory decisions, and provides guidelines for managers when making deci-
sions under VMI.
Future research may include exploring long-term relationships between the supply chain members in a multiple period
setting; introducing multiple brands to reflect products competition. Finally, one can also consider the relationship between
supply quantity and retail price in the future work.

Acknowledgments

This research is supported by Natural Science Foundation of China (71202140, 71572184, 71301147, 71301148, 71601169,
and 71401158), Zhejiang Provincial Natural Science Foundation of China (LQ16G010 0 07). This research is also partially sup-
ported by the key research center of philosophy and social science of Zhejiang province, Zhejiang Technological Innovation
and Enterprise Internationalization Research Center (15JDJS03YB).

Appendix A

Proof of Proposition 1. Let f(x, y) denote joint probability density function of di and dj . We have f(x, y) = fi (x)fj (y) since di
and dj are assumed to be independent. We have the following situations:

(i) qi − x ≥ y − qj ≥ 0.
When y ≥ qj and y ≤ qi + qj − x, the extra demand of brand i due to substitution can be expressed as:
 qi
 qi +q j −x

ia = (y − q j ) f (x, y )dy dx.
0 qj

(ii) 0 ≤ qi − x ≤ y − qj .
When x ≤ qi and y ≥ qi + qj − x, the extra demand of brand i due to substitution can be expressed as:
 qi
 +∞

ib = (qi − x ) f (x, y )dy dx.
0 qi +q j −x

Combining (i) and (ii), we find that the extra demand of brand i due to substitution is:
 qi
 qi +q j −x
  qi
 +∞

i = ia + ib = (y − q j ) f (x, y )dy dx + (qi − x ) f (x, y )dy dx.
0 qj 0 qi +q j −x
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 627

Subsequently, we find:
 
∂ ia qi +q j −qi qi
= (y − q j ) f (qi , y )dy − 0 + (qi + q j − x − q j ) f (x, qi + q j − x )dx
∂ qi qj 0
 qi
= (qi − x ) f (x, qi + q j − x )dx,
0

    
∂ ib +∞ qi
d +∞
= (qi − qi ) f (qi , y )dy − 0 + (qi − x ) f (x, y )dy dx
∂ qi qi +q j −qi 0 d qi qi +q j −x
 qi
 +∞

= f (x, y )dy − (qi − x ) f (x, qi + q j − x ) dx
0 qi +q j −x
 qi
 +∞

 qi
= f (x, y )dy dx − (qi − x ) f (x, qi + q j − x )dx.
0 qi +q j −x 0

Thus,

∂ i ∂ ia ∂ ib qi
= + = (qi − x ) f (x, qi + q j − x )dx
∂ qi ∂ qi ∂ qi
 q  + ∞

0
i
 qi
× f (x, y )dy dx − (qi − x ) f (x, qi + q j − x )dx
0 qi +q j −x 0
 qi
 +∞

= f (x, y )dy dx > 0.

0 qi +q j −x

i is therefore increasing in qi .
∗
Proof of Proposition 2 . To prove that q∗ in Eq. (9) is unique, we define Z1 = w+k
∗ + w2λλqq∗ and have:
eλq e

∂ Z1 ((w + k )λeλq + wλ )e2λq − 2λ((w + k )eλq + wλq∗ )e2λq

∗ ∗ ∗ ∗

=
∂q ∗ e4λq∗
λ
w − (w + k )e − 2wλq
q∗ ∗
=λ 2λq∗
< 0.
e
Thus, Z1 decreases in q∗ . If q∗ = 0, we have Z1 |q∗ =0 = w + k. We can also find ∗lim Z1 = 0. Given 0 < c < w + k, it is easy
q →∞
w+k
to see that there exists a unique positive q∗ which satisfies Eq. (9). From Eq. (2), we have  = c. Therefore, we conclude
eλq
q∗ > q .
Proof of Proposition 3. In Eq. (8), Jsi (qi ) does not depend on qj , and wE[max {min (qi − di , dj − qj ), 0}] ≥ 0, we assure
∂ Si ( qi )
Si
1
( q )
≥ Jsi (q ). From Eq. (8), we can also see that for any given qj , there exists a unique qτi , which satisfies 1
∂ qi = 0.
Thus qτi maximizes Si 1
( q i ) , which leads to  Si (qτ ) ≥ Si (q ) ≥ J (q ).
1 i 1 si
Now given qj = q∗ , we know that qτi = q∗ maximizes Si 1
(qi ). Thus, it is easy to see Si
1
(q∗ ) ≥ Jsi (q ). Proof for supplier j
can be done similarly.
λq j
e +λqia
Proof of Proposition 4. Let Z2 = λ(qia +q j ) . Given any positive qj , we have:
e

∂ Z2 λeλ(qia +q j ) − λ(eλq j + λqia )eλ(qia +q j )

=
∂ qia e2λ(qia +q j )
λ
e + λqia − 1
qj
= −λ λ ( q +q )
< 0.
e ia j

Thus Z2 is decreasing in qia . When qia = 0, we have Z2 |qia =0 = 1; alternatively, lim Z2 = 0. When 0 < c
c
< 1, we find that
qia →∞
for any positive qj , there exists a unique positive qia which satisfies Eq. (17).
λq j
e + λq i ∂Z λ2 q ∂Z
Proof of Proposition 5. Let Z3 = λ ( qi +q j ) . Given any positive qi , we have ∂ q3 = − λ(q +iq ) < 0. From ∂ q3 < 0 and
e j e i j j
Proposition 4, we conclude qic < qia < qib .
λq
wλqid +c e j
Proof of Proposition 6. Let Z4 = λ(qid +q j ) , then we have:
e

∂ Z4 wλeλ(qid +q j ) − λ(wλqid + c eλq j )eλ(qid +q j )

=
∂ qid e2λ(qid +q j )
 λ
wλqid + c e q j − w
= −λ λ ( q +q )
.
e id j
628 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629

∂Z
Because c’ > w and eλq j > 1, we have wλqid + c eλq j − w > 0. Thus, ∂ q 4 < 0. When qid = 0, we have Z4 |qid =0 = c ; alterna-
id
tively lim Z4 = 0. If 0 < c < c’, for any positive qj , there exists a unique positive qid which satisfies Eq. (21). From Eq. (17),
qid →∞
we have
eλq j + λqia 
c = c.
eλ(qia +q j )
Using proof by contradiction, we assume qia = qid . Given qj , w and λ, we have:

wλqid + eλq j c eλq j + λqia 

− c > 0.
eλ(qid +q j ) eλ(qia +q j )
Note that in the first term above, the c’ is greater than w, i.e. c’ > w; while that in the second term, the replenishment
λq j
e +λqia
cost is smaller with c’ ≤ w. Thus the assumption of qia = qid does not hold. Since λ(qia +q j ) decreases with qia , in order to
e
make both Eqs. (17) and (21) hold, we must have qid > qia .
Proof of Proposition 7. Given w + k ≥ c’, we find that Si (q ) ≥ Si
2a ia 1
(q∗ ) and Si (q ) ≥ Si
2b id 1
(q∗ ) since (a) supplier i has
opportunities to sell more products through replenishment of brand i ; (b) supplier j chooses a lower inventory quantity, q ,
where q < q∗ .
Proof of Proposition 8. We first consider the following two functions G1 (q) = 1 + 2qλ and G2 (q) = eλq . Obviously G1 (q) and
G2 (q) intersects at q = 0, and their slopes are:

∂ G1 (q ) ∂ G2 (q )
= 2λ > = λ.
∂ q q=0 ∂ q q=0
∗∗
Thus G1 (q) and G2 (q) intersects at another point q∗∗ > 0, determined by 1 + 2q∗∗ λ = eλq . Obviously the value of q∗∗ only
depends on parameter λ. Thus 1 + 2qλ > eλq if q < q∗∗ , and 1 + 2qλ < eλq if q > q∗∗ . Consider the following two cumulative
distribution functions:
F (q ) = 1 − e−λq ,

1 + 2qλ
FD (2q ) = 1 − .
eλq eλq
∗∗
We find that F(q) > FD (2q) if 1 + 2qλ > eλq ; and F(q) < FD (2q) if 1 + 2qλ < eλq . When w+ k
c =e
λq , we have q = q∗∗ .
λ ∗∗
Since 1 + 2q λ = e
∗∗ q , we have F(q ) = FD (2q ). As there is only one root in Eq. (25), we can readily have q = q = q∗∗ .
∗∗ ∗∗

When, w+ k
< e λq∗∗ we have q < q∗∗ ; subsequently F(q ) > F (2q ). By combining Eqs. (2) and (25), we conclude q > q . To
c D
prove q < q∗∗ , we use proof by contradiction and assume q > q∗∗ . Then F(q ) < FD (2q ) should hold, leading to q < q ,
which contradicts our findings that q > q . Thus we have q∗∗ > q > q . Through similar way, we can find q∗∗ < q < q if
w+k λq∗∗ .
c >e
Proof of Proposition 9. From Eqs. (25) and (31), we have:
wFD (2q ) + kF (q ) − [(c − k )FD (2q˜ ) + kF (q˜ )] = w + k − c . (32)
We use proof by contradiction. If q˜ = q , then to ensure Eq. (32) holds, we must have q˜ = q = +∞, which leads to
Eqs. (25) and (31) to be not true; so, q˜
= q . On the other hand, when q˜ > q , by plugging them into Eq. (32), we find the
equality does not hold. Thus, we conclude q˜ < q . Similarly, we can prove q < q .

References

[1] P. Danese, Supplier integration and company performance: a configurational view, Omega 41 (6) (2013) 1029–1041.
[2] P.K. Humphreys, W.L. Li, L.Y. Chan, The impact of supplier development on buyer–supplier performance, Omega 32 (2) (2004) 131–143.
[3] P. Fiala, Information sharing in supply chains, Omega 33 (5) (2005) 419–423.
[4] M.A. Lariviere, E.L. Porteus, Selling to the newsvendor: an analysis of price-only contracts, Manuf. Serv. Oper. Manag. 3 (4) (2001) 293–305.
[5] J. Chen, Returns with wholesale-price-discount contract in a newsvendor problem, Int. J. Prod. Econ. 130 (2011) 104–111.
[6] Z.K. Weng, Coordinating order quantities between the manufacturer and the buyer: a generalized newsvendor model, Eur. J. Oper. Res. 156 (2004)
148–161.
[7] T.A. Taylor, Supply chain coordination under channel rebates with sales effort effects, Manag. Sci. 48 (8) (2002) 992–1007.
[8] K. Anand, R. Anupindi, Y. Bassok, Strategic inventories in vertical contracts, Manag. Sci. 54 (10) (2008) 1792–1804.
[9] H. Lan, R. Li, Z. Liu, R. Wang, Study on the inventory control of deteriorating items under VMI model based on bi-level programming, Expert Syst.
Appl. 38 (8) (2011) 9287–9295.
[10] H. Yu, L. Tang, Y. Xu, Y. Wang, How much does VMI better than RMI in a global environment, Int. J. Prod. Econ. 170 (2015) 268–274.
[11] C.X. Wang, Random yield and uncertain demand in decentralised supply chains under the traditional and VMI arrangements, Int. J. Prod. Res. 47 (7)
(2009) 1955–1968.
[12] G.P. Cachon, The allocation of inventory risk in a supply chain: push, pull, and advance-purchase discount contracts, Manag. Sci. 50 (2) (2004) 222–238.
[13] W. Hu, Y. Li, K. Govindan, The impact of consumer returns policies on consignment contracts with inventory control, Eur. J. Oper. Res. 233 (2014)
398–407.
[14] M. Khan, M.Y. Jaber, S. Zanoni, L. Zavanella, Vendor managed inventory with consignment stock agreement for a supply chain with defective items,
Appl. Math. Model. 40 (15–16) (2016) 7102–7114.
 J. Cai et al. / Applied Mathematical Modelling 43 (2017) 611–629 629

[15] E. Bazan, M.Y. Jaber, S. Zanoni, Supply chain models with greenhouse gases emissions, energy usage and different coordination decisions, Appl. Math.
Model. 39 (2015) 5131–5151.
[16] M. Stålhane, H. Andersson, M. Christiansen, K. Fagerholt, Vendor managed inventory in tramp shipping, Omega 47 (2014) 60–72.
[17] C.H. Huynh, W. Pan, Operational strategies for supplier and retailer with risk preference under VMI contract, Int. J. Prod. Econ. 169 (2015) 413–421.
[18] Y. Wang, L. Jiang, Z.J. Shen, Channel performance under consignment contract with revenue sharing, Manag. Sci. 50 (1) (2004) 34–47.
[19] J.Y. Lee, R.K. Cho, S.K. Paik, Supply chain coordination in vendor-managed inventory systems with stockout-cost sharing under limited storage capacity,
Eur. J. Oper. Res. 248 (2016) 95–106.
[20] J. Cai, L. Wang, Y. Han, G. Zhou, W. Huang, Advance order strategies: effects on competition structure in a two-echelon supply chain, Appl. Math.
Model. 34 (9) (2010) 2465–2476.
[21] S. Çetinkaya, C.Y. Lee, Stock replenishment and shipment scheduling for vendor-managed inventory systems, Manag. Sci. 46 (2) (20 0 0) 217–232.
[22] Y. Yu, G.Q. Huang, L. Liang, Stackelberg game-theoretic model for optimizing advertising, pricing and inventory policies in vendor managed inventory
(VMI) production supply chains, Comput. Ind. Eng. 57 (2009) 368–382.
[23] Y. Yu, F. Chu, H. Chen, A Stackelberg game and its improvement in a VMI system with a manufacturing vendor, Eur. J. Oper. Res. 192 (2009) 929–948.
[24] A.A. Taleizadeh, M. Noori-daryan, L.E. Cárdenas-Barrón, Joint optimization of price, replenishment frequency, replenishment cycle and production rate
in vendor managed inventory system with deteriorating items, Int. J. Prod. Econ. 159 (2015) 285–295.
[25] K. Govindan, The optimal replenishment policy for time-varying stochastic demand under vendor managed inventory, Eur. J. Oper. Res. 242 (2015)
402–423.
[26] M. Hariga, M. Gumus, A. Daghfous, S.K. Goyal, A vendor managed inventory model under contractual storage agreement, Comput. Oper. Res. 40 (8)
(2013) 2138–2144.
[27] J. Sadeghi, S.M. Mousavi, S.T.A. Niaki, Optimizing an inventory model with fuzzy demand, backordering, and discount using a hybrid imperialist com-
petitive algorithm, Appl. Math. Model. 40 (15–16) (2016) 7318–7335.
[28] A. Mateen, A.K. Chatterjee, Vendor managed inventory for single-vendor multi-retailer supply chains, Decis. Support Syst. 70 (2015) 31–41.
[29] S. Li, Z. Yu, M. Dong, Construct the stable vendor managed inventory partnership through a profit-sharing approach, Int. J. Syst. Sci. 46 (2) (2015)
271–283.
[30] A. Mateen, A.K. Chatterjee, S. Mitra, VMI for single-vendor multi-retailer supply chains under stochastic demand, Comput. Ind. Eng. 79 (2015) 95–102.
[31] M. Hariga, M. Gumus, A. Daghfous, Storage constrained vendor managed inventory models with unequal shipment frequencies, Omega 48 (2014)
94–106.
[32] Y. Gerchak, Y. Wang, Revenue-sharing vs. wholesale-price contracts in assembly systems with random demand, Prod. Oper. Manag. 13 (1) (2004)
23–33.
[33] D. Huang, H. Zhou, Q.H. Zhao, A competitive multiple-product newsboy problem with partial product substitution, Omega 39 (3) (2011) 302–312.
[34] B.K. Mishra, S. Raghunathan, Retailer- vs. vendor-managed inventory and brand competition, Manag. Sci. 50 (4) (2004) 445–457.
[35] X. Hong, W. Chunyuan, L. Xu, A. Diabat, Multiple-vendor, multiple-retailer based vendor-managed inventory, Ann. Oper. Res. 238 (1) (277–297).
doi: 10.1007/s10479-015-2040-0.
[36] J. Sadeghi, S.M. Mousavi, S.T.A. Niaki, S. Sadeghi, Optimizing a multi-vendor multi-retailer vendor managed inventory problem: two tuned meta-heuris-
tic algorithms, Knowl. Based Syst. 50 (2013) 159–170.
[37] B.R. Sarker, Consignment stocking policy models for supply chain systems: a critical review and comparative perspectives, Int. J. Prod. Econ. 155 (2014)
52–67.
[38] C.S. Tang, K. Rajaram, A. Alptekinoglu, J. Ou, The benefits of advance booking discount programs: model and analysis, Manag. Sci. 50 (4) (2004)
465–478.
[39] H.S. Lau, A.H.L. Lau, Manufacturer’s pricing strategy and return policy for a single-period commodity, Eur. J. Oper. Res. 116 (2) (1999) 291–304.
 Update
Applied Mathematical Modelling
Volume 59, Issue , July 2018, Page 750

DOI: https://doi.org/10.1016/j.apm.2017.02.040
 Applied Mathematical Modelling 59 (2018) 750

Contents lists available at ScienceDirect

Applied Mathematical Modelling

journal homepage: www.elsevier.com/locate/apm

Corrigendum

Corrigendum to “Optimal inventory decisions under

vendor managed inventory: Substitution effects and
replenishment tactics” [Applied Mathematical Modelling
43 (2017) 611–629]
Jianhu Cai a,∗, Pandu R. Tadikamalla b, Jennifer Shang b, Guanghui Huang c
a
College of Economics and Management, Zhejiang University of Technology, Hangzhou 310023, PR China
b
Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260, United States
c
College of Mathematics and Statistics, Chongqing University, Chongqing 401331, PR China

The authors regret the error in the reference and it has been corrected as below,
[35] X. Hong, W. Chunyuan, L. Xu, A. Diabat, Multiple-vendor, multiple-retailer based vendor-managed inventory, Ann.
Oper. Res. 238(1) (277–297) doi: 10.1007/s10479-015-2040-0.
should change into:
[35] X. Hong, W. Chunyuan, L. Xu, A. Diabat, Multiple-vendor, multiple-retailer based vendor-managed inventory, Ann.
Oper. Res. 238(1–2) (2016) 277–297.
The authors would like to apologise for any inconvenience caused.

DOI of original article: 10.1016/j.apm.2016.11.027

∗
Corresponding author.

http://dx.doi.org/10.1016/j.apm.2017.02.040
0307-904X