LSMS2035 SUPPLY CHAIN COORDINATION AND SOURCING 1(5)

UCL/LSML/CESCM/AGRELL 01.09.2010
Name: Prog:

LSMS2035
EXAMINATION 01.09.2010

Grading
Question 1 2 Total
Score
Total 50 50 100

INSTRUCTIONS
1. Exam is closed book, open notes.
2. Only allowed material is a page (two faces) of
notes.
3. The questions may be solved independently.
4. Answer only one question per answer sheet.
5. Explain and justify your answer in clear English,
including any additional assumptions.
6. Do not unstaple the exam paper.
7. Write your full name on each submitted paper.
LSMS2035 SUPPLY CHAIN COORDINATION AND SOURCING 2(5)
UCL/LSML/CESCM/AGRELL 01.09.2010
Name: Prog:

QUESTION 1 50 p

A single-period single-item supply chain inventory problem consists of two

parties, an upstream supplier and a downstream retailer, where the retailer faces
a stochastic demand with known density function f(x) and distribution function
F(x) under a fixed exogenous price p and a salvage value v per unit. The goodwill
costs per unit not delivered are defined as gr and gs for the retailer and the
supplier, respectively. The supplier has a marginal cost cs > 0. The retailer incurs
a marginal cost of cr per unit sold (for repackaging, delivery etc).

Assume as that p + gr + gs > v , p – cr > v and cr > v.

Consider a buy-back contract with upfront price w paid to supplier and buy-back
price b paid by the supplier to the retailer for units left-over after the selling
season.
a) Derive the expected supply chain surplus for the scenario.
b) Derive the expected surplus for the supplier.
c) Derive the necessary condition for an efficient coordination solution.
d) Show how profit allocation flexibility can be verified.
LSMS2035 SUPPLY CHAIN COORDINATION AND SOURCING 4(5)
UCL/LSML/CESCM/AGRELL 01.09.2010
Name: Prog:

QUESTION 2 50 p

A supplier (say, Danone) needs to coordinate multiple competing newsvendors (say,

retailers Carrefour and Delhaize) to optimize availability and profitability for a fresh
product.

In reality, this coordination is made through separate contracts with a fixed annual
component per SKU (the slotting fee), VMI with consignment and a variable fee paid
for each unit sold.

Consider the problem seen from a theoretical viewpoint and compare with practice:
a) What is fundamentally different when coordinating multiple rather than a
single newsvendor?
b) How does the efficiency of contracts change in this setting?
c) What contract type/s is/are suggested for coordination of multiple retailers
and why?
d) Compared to actual practice, discuss whether the proposal(s) in [c] are
essential, realistic and implementable in actual retail for the Danone case.
State necessary hypotheses, no derivation of model necessary.