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Xiong, M.; Zhuo, X. Channel Distribution in Supply Chains. Encyclopedia. Available online: https://encyclopedia.pub/entry/50817 (accessed on 02 July 2024).
Xiong M, Zhuo X. Channel Distribution in Supply Chains. Encyclopedia. Available at: https://encyclopedia.pub/entry/50817. Accessed July 02, 2024.
Xiong, Minghua, Xiaopo Zhuo. "Channel Distribution in Supply Chains" Encyclopedia, https://encyclopedia.pub/entry/50817 (accessed July 02, 2024).
Xiong, M., & Zhuo, X. (2023, October 26). Channel Distribution in Supply Chains. In Encyclopedia. https://encyclopedia.pub/entry/50817
Xiong, Minghua and Xiaopo Zhuo. "Channel Distribution in Supply Chains." Encyclopedia. Web. 26 October, 2023.
Channel Distribution in Supply Chains
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This entry is adapted from the peer-reviewed paper 10.3390/su15087004

In multitier supply chains, brand-owners often form exclusive deals with downstream retailers or upstream suppliers. Therefore, the selection of exclusive channel strategies becomes a critical decision for brand owners, resulting in three typical structures: a flexible structure, an exclusive retailing-channel structure, and an exclusive purchasing-channel structure. 

contract unobservability multitier supply chain exclusive channels

1. Introduction

In practice, exclusive channel strategies are commonly observed in a variety of goods and service markets. In the vaccine market, some overseas vaccine suppliers select exclusive retailers [1]. For instance, Sanofi Pasteur received exclusive worldwide marketing rights for infectious disease vaccines from Translate Bio [2]. In the mobile phone market, some brand-owners’ mobile phones were sold only through exclusive telecom service providers when their mobile phones were first launched [3]. For instance, Apple and AT&T originally signed a 5 year exclusive deal for iPhone when the iPhone was first launched in 2007 [4]. In addition, it is common knowledge that some film and television programs are available through exclusive channels in the TV market. Similarly, numerous books were only released through exclusive reading platforms in the e-book market.
In a multitier supply chain, brand-owners may form exclusive deals with downstream retailers or upstream suppliers, resulting in two typical exclusive channel strategies: exclusive retailing-channel and exclusive purchasing-channel strategies. The exclusive retailing-channel strategy involves brand-owners forming exclusive deals with downstream retailers to distribute goods or services. For instance, in 2018, OnePlus, a mobile phone brand-owner, signed a contract with e-retailer JD.com to exclusively sell its products in China [5]. On the other hand, the exclusive purchasing-channel strategy entails brand-owners forming exclusive deals with upstream suppliers to procure goods or services. For example, IKEA, a renowned furniture brand-owner, signed an exclusive agreement with Caesarstone, a leading manufacturer of high-quality engineered quartz surfaces, in 2013 [6]. Obviously, the exclusive retailing channel can help brand-owners enhance pricing power, thus increasing efficiency and competitiveness [7]. In contrast, the exclusive purchasing channel may reduce supply resilience, but it helps brand-owners control the quality of supply and improve the competitiveness of goods or services. Therefore, a crucial question arises: which strategy is more beneficial to brand-owners when forming exclusive deals, the exclusive retailing channel or exclusive purchasing channel?

2. Channel Distribution in Supply Chains

The first and most related stream is the literature on channel distribution, which has been extensively studied in recent years. Cattani et al. [8] and Tsay and Agrawal [9] provided a comprehensive and insightful discussion on channel distribution in supply chains. Most existing studies on channel distribution focused on a two-tier supply chain. Among them, some studies investigated channel distribution from the perspective of an upstream manufacturer. They studied a manufacturer’s choice of direct and indirect sales channels, such as He et al. [10], Wang et al. [11], Chen et al. [12], Pun et al. [13], and Zhang et al. [14]. On the contrary, some studies investigated channel distribution from the perspective of a downstream retailer. They mainly focused on the retailer’s choice of agency selling and reselling channel strategy (e.g., Abhishek et al. [15] and Zhang and Zhang [16]), and the retailer’s choice of an online-and-offline channel strategy (e.g., Zhang et al. [17] and Nie et al. [18]) by modeling different channel structures. The abovementioned studies all built several different channel structures, in order to investigate which channel structure (channel strategy) is more beneficial.
Unlike the above literature on channel distribution in a two-tier supply chain, some previous studies investigated channel distribution in a three-tier supply chain, such as Giri et al. [19], Islam et al. [20], Lan et al. [21], and Li and Chen [22]. However, Giri et al. [19] focused on a single-channel supply chain to study the channel coordination/Pareto improvement. They did not investigate the horizontal competition, such as competition among retailers. Furthermore, Islam et al. [20] considered the competition among multiple retailers to investigate a manufacturer managed consignment policy in a three-tier supply chain involving a single supplier, a single manufacturer, and multiple retailers. Both Lan et al. [21] and Li and Chen [22] modeled a three-tier dual-channel supply channel from the perspective of supply-chain coordination. 

3. Exclusive Channel Strategies

Numerous studies have focused on exclusive channel strategies in supply chains. Among them, some studies investigated the impact of product substitutability in a dual-exclusive-channel system. For example, McGuire and Staelin [23] investigated the impact of product substitutability on Nash equilibrium distribution structures. Zhang et al. [24] and Li et al. [25] investigated the effect of product substitutability and relative channel status on pricing decisions. However, the authors investigate the effect of channel substitutability in three typical channel systems, including two exclusive channel structures. The abovementioned studies did not compare different exclusive channel structures (strategies) or analyzed which channel structure (strategy) is better. However, several studies mainly focused on the comparison of different exclusive strategies. For example, Niu et al. [1] built game-theoretical models to compare exclusive retailing and competitive retailing in vaccine supply chains and found that the overseas vaccine supplier would prefer competitive retailing when the overseas vaccine and the local vaccine are deeply substitutable. Cai et al. [3] investigated the efficacy of a combination of exclusive channels and revenue sharing by modeling a hybrid multichannel supply chain in a bilateral duopoly setting with complementary goods. This study is more relevant to that of Cai et al. [3], in which four different exclusive channel structures in a two-tier supply chain were investigated. Unlike them, authors consider three typical channel structures in a three-tier supply chain to investigate the brand-owners’ exclusive retailing-channel and exclusive purchasing-channel strategies. Furthermore, it investigates the brand-owners’ exclusive channel strategies under contract observability and unobservability.

4. Contract Unobservability

Most existing studies assumed that contract terms between suppliers and retailers are common knowledge (e.g., [26]). However, unobservable contracts can better reflect channel competition in business-to-business transactions. Most previous studies with unobservable contracts considered the following supply chain structures: (1) supply chains with one upstream supplier and multiple downstream retailers (e.g., [27][28][29]), (2) supply chains with multiple upstream suppliers and one downstream retailer (e.g., [30]), and (3) supply chains with chain-to-chain competition (e.g., [7][31][32]). These studies with contract unobservability mainly focused on the impact of contract unobservability on vertical integration and supply-chain contracting. For example, O’Brien and Shaffer [28] showed that nonlinear contracts fail to obtain the vertically integrated outcome when retailers cannot observe their rivals’ contracts. This study is more relevant to the study of the impact of contract unobservability on supply-chain contracting. Typical studies include Li and Liu [27] and Liu et al. [30]. Both studies compared wholesale-price contract and two-part contract under contract unobservability. The former considered a supply chain consisting of one manufacturer and two retailers, while the latter considered a supply chain consisting of two manufacturers and one retailer.

References

  1. Niu, B.; Li, Q.; Chen, L. Exclusive vs. competitive retailing: Overseas vaccine supplier’s channel selection considering profit and social responsibility objectives. Comput. Ind. Eng. 2020, 144, 106499.
  2. Sanofi Sanofi and Translate Bio Expand Collaboration to Develop mRNA Vaccines across All Infectious Disease Areas. Available online: https://www.sanofi.com/en/media-room/press-releases/2020/2020-06-23-04-59-00-2051681 (accessed on 10 February 2023).
  3. Cai, G.; Dai, Y.; Zhou, S.X. Exclusive channels and revenue sharing in a complementary goods market. Market. Sci. 2012, 31, 172–187.
  4. ZDNET Apple, AT&T Had Five-Year Exclusive iPhone Deal but Have the Terms since Changed? Available online: https://www.zdnet.com/article/apple-at-t-had-five-year-exclusive-iphone-deal-but-have-the-terms-since-changed/ (accessed on 10 February 2023).
  5. JD.com Corporate Blog Oneplus Partners with JD.com. Available online: https://jdcorporateblog.com/premium-smartphone-maker-oneplus-signs-long-term-exclusive-partnership-with-jd-com/ (accessed on 8 January 2023).
  6. Caesarstone Caesarstone Signs Exclusivity Agreement with IKEA US. Available online: https://ir.caesarstone.com/news/news-details/2013/Caesarstone-Signs-Exclusivity-Agreement-with-IKEA-US/default.aspx (accessed on 8 January 2023).
  7. Zhuo, X.; Wang, F.; Niu, B. Brand-owners’ vertical and horizontal alliance strategies facing dominant retailers: Effect of demand substitutability and complementarity. Omega 2021, 103, 102449.
  8. Cattani, K.D.; Gilland, W.G.; Swaminathan, J.M. Coordinating traditional and internet supply chains. In Handbook of Quantitative Supply Chain Analysis: Modeling in the E-Business Era; Simchi-Levi, D., Wu, S.D., Shen, Z., Eds.; Springer: Boston, MA, USA, 2004; pp. 643–677.
  9. Tsay, A.A.; Agrawal, N. Modeling conflict and coordination in multi-channel distribution systems: A review. In Handbook of Quantitative Supply Chain Analysis: Modeling in the E-Business Era; Simchi-Levi, D., Wu, S.D., Shen, Z., Eds.; Springer: Boston, MA, USA, 2004; pp. 557–606.
  10. He, P.; He, Y.; Xu, H. Channel structure and pricing in a dual-channel closed-loop supply chain with government subsidy. Int. J. Prod. Econ. 2019, 213, 108–123.
  11. Wang, C.; Leng, M.; Liang, L. Choosing an online retail channel for a manufacturer: Direct sales or consignment? Int. J. Prod. Econ. 2018, 195, 338–358.
  12. Chen, J.; Zhang, H.; Sun, Y. Implementing coordination contracts in a manufacturer Stackelberg dual-channel supply chain. Omega 2012, 40, 571–583.
  13. Pun, H.; Chen, J.; Li, W. Channel strategy for manufacturers in the presence of service freeriders. Eur. J. Oper. Res. 2020, 287, 460–479.
  14. Zhang, C.; Li, Y.; Ma, Y. Direct selling, agent selling, or dual-format selling: Electronic channel configuration considering channel competition and platform service. Comput. Ind. Eng. 2021, 157, 107368.
  15. Abhishek, V.; Jerath, K.; Zhang, Z.J. Agency selling or reselling? Channel structures in electronic retailing. Manag. Sci. 2015, 62, 2259–2280.
  16. Zhang, S.; Zhang, J. Agency selling or reselling: E-tailer information sharing with supplier offline entry. Eur. J. Oper. Res. 2020, 280, 134–151.
  17. Zhang, P.; He, Y.; Shi, C.V. Retailer’s channel structure choice: Online channel, offline channel, or dual channels? Int. J. Prod. Econ. 2017, 191, 37–50.
  18. Nie, J.; Zhong, L.; Yan, H.; Yang, W. Retailers’ distribution channel strategies with cross-channel effect in a competitive market. Int. J. Prod. Econ. 2019, 213, 32–45.
  19. Giri, B.C.; Bardhan, S.; Maiti, T. Coordinating a three-layer supply chain with uncertain demand and random yield. Int. J. Prod. Res. 2016, 54, 2499–2518.
  20. Islam, S.M.S.; Hoque, M.A.; Hamzah, N. Single-supplier single-manufacturer multi-retailer consignment policy for retailers’ generalized demand distributions. Int. J. Prod. Econ. 2017, 184, 157–167.
  21. Lan, Y.; Li, Y.; Papier, F. Competition and coordination in a three-tier supply chain with differentiated channels. Eur. J. Oper. Res. 2018, 269, 870–882.
  22. Li, W.; Chen, J. Manufacturer’s vertical integration strategies in a three-tier supply chain. Transp. Res. Part E Logist. Transp. Rev. 2020, 135, 101884.
  23. McGuire, T.W.; Staelin, R. An industry equilibrium analysis of downstream vertical integration. Mark. Sci. 1983, 2, 161–191.
  24. Zhang, R.; Liu, B.; Wang, W. Pricing decisions in a dual channels system with different power structures. Econ. Model. 2012, 29, 523–533.
  25. Li, T.; Zhang, R.; Liu, B. Pricing decisions of competing supply chains under power imbalance structures. Comput. Ind. Eng. 2018, 125, 695–707.
  26. Feng, Q.; Lu, L.X. Supply chain contracting under competition: Bilateral bargaining vs. Stackelberg. Prod. Oper. Manag. 2013, 22, 661–675.
  27. Li, X.; Liu, Q. Contract unobservability and downstream competition. Manuf. Serv. Oper. Manag. 2021, 23, 1468–1482.
  28. O’Brien, D.P.; Shaffer, G. Vertical control with bilateral contracts. RAND J. Econ. 1992, 23, 299–308.
  29. Doganoglu, T.; Inceoglu, F. Buyback contracts to solve upstream opportunism. Eur. J. Oper. Res. 2020, 287, 875–884.
  30. Liu, B.; Yu, Y.; Guo, X. Simpler and better: Supply chain contracting in the presence of contract unobservability and upstream competition. Transp. Res. Part E Logist. Transp. Rev. 2021, 154, 102478.
  31. Coughlan, A.T.; Wernerfelt, B. On credible delegation by oligopolists: A discussion of distribution channel management. Manag. Sci. 1989, 35, 226–239.
  32. Ha, A.Y.; Tian, Q.; Tong, S. Information sharing in competing supply chains with production cost reduction. Manuf. Serv. Oper. Manag. 2017, 19, 246–262.
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Subjects: Operations Research & Management Science
Contributors MDPI registered users' name will be linked to their SciProfiles pages. To register with us, please refer to https://encyclopedia.pub/register :
Minghua Xiong
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Update Date: 06 Nov 2023
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