Coordinating the ordering and advertising policies for a single-period commodity in a two-level supply chain

This study deals with the news-vendor problem to the case of a two-level supply chain consisting of one manufacturer and one retailer, and investigates the combined effects of the cooperative advertising mechanism, the return policy and the channel coordination. The manufacturer and the retailer could maintain the potential market size by making some marketing expenditures on some national brand names and invest in local advertising, but with diminishing returns. The decision problem facing the profit-oriented entities in the supply chain is to determine the optimal advertising and inventory policies for maximizing their own profit. Both the non-cooperative policy and the cooperative policy are formulated to offer structural and quantitative insights into the interplay between upstream and downstream entities of the supply chain. In addition, the implications of a profit-sharing mechanism based on achieving a win–win relationship of the channel members was also proposed.

► We examine effects of co-op advertising, return policy and channel coordination.
► The cooperative policy and the non-cooperative policy are investigated.
► The local advertising and the brand name investments can influence items’ sale.
► The cooperative policy outperforms the non-cooperative policy in profit improvement.
► A profit-sharing mechanism could be applied to achieve a win–win relationship.