Integration of Operational and Marketing Tools With Time Delays: Is Cooperation Possible?

Abstract

We confine our interest to a supply chain consisting of a manufacturer offering the quality improving effort and a retailer performing the promotional activity. The quality effort positively contributes to brand goodwill while the promotion negatively affects brand goodwill. However, the influences of both strategies, positive or negative, on brand goodwill are not instantaneous but delayed. Hence, to explore the impact of time delay and figure out the feasibility of a cooperative program in this situation, we formulate a differential game model with dual time delays. By deriving and comparing the equilibrium strategies, profits under non-cooperative, two-subsidy and centralized patterns, we find that the cooperative program is implementable if the marginal profit of manufacturer and retailer satisfy particular relationships and can achieve Pareto-improving for both parties but cannot fully coordinate the supply chain. Consequently, revenue sharing and two-subsidy policy are introduced to coordinate the decentralized supply chain.

Keywords

• Quality improvement
• promotion
• delay
• revenue sharing
• cooperative program