Trading System Designing for Realizing Supply Chain Collaboration

As the vertically integrated supply chain structure converts into a horizontal division of labor, manufacturers of modular consumer electronics, such as liquid-crystal display televisions, personal computers, and smartphones, find it difficult to achieve adequate profits by selling products to retailers with contract terms decided through negotiation. The double marginalization phenomenon caused by information asymmetry, market power deviation, and self-interest consideration in such negotiations has been discussed in many previous studies. With double marginalization, the total profit of both negotiation participants is much lower than the monopoly profit in the supply chain. This study considers a two-level supply chain consisting of a liquid-crystal display television manufacturer and a mass retailer. A new trading system is proposed to improve the profit of the manufacturer by improving the total profit of the supply chain. With realistic data estimated by the financial statements of Japanese manufacturers and retailers, the effectiveness and applicability of the proposed trading system is confirmed through numerical experiments.