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Investment and coordination decisions in a supply chain of fresh agricultural products

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Abstract

This paper investigates investment decisions in a supply chain of fresh agricultural products. Based on investment decisions of supply chain members, three different scenarios are considered, and the corresponding results are compared by considering the impact of fairness indices. In the decentralized scenario, joint investment in maintaining product freshness is profitable for both the manufacturer and retailer; however, the manufacturer utility decreases progressively with an increase in the retailer fairness index. To coordinate and achieve a win–win outcome, and maintain fairness for each member, revenue sharing coupled with investment cost sharing is proposed. To enforce this contract, the manufacturer may need to charge negative wholesale prices, but as a result, the highest utility for the supply chain cannot be achieved. In an alternative approach, an incremental quantity discount contract may encourage the manufacturer to charge a wholesale price greater than the marginal cost such that both members of the supply chain achieve the highest utility possible. Extended numerical investigation provides insights on ways to manage an efficient joint-investment strategy for a sustainable fresh agricultural products supply chain.

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Acknowledgements

The authors are grateful to valuable comments by referees to improve earlier versions of the paper. This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) [grant number 2017R1A2B2007812].

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Authors and Affiliations

  1. Department of Industrial Engineering, Seoul National University, Seoul, 08826, Republic of Korea

    Ilkyeong Moon, Yoon Jea Jeong & Subrata Saha

  2. Institute for Industrial Systems Innovation, Seoul, 08826, Republic of Korea

    Ilkyeong Moon

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  1. Ilkyeong Moon
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  3. Subrata Saha
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Correspondence to Subrata Saha.

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Moon, I., Jeong, Y.J. & Saha, S. Investment and coordination decisions in a supply chain of fresh agricultural products. Oper Res Int J 20, 2307–2331 (2020). https://doi.org/10.1007/s12351-018-0411-4

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