Over the past decade, a significant change has occurred in the way businesses progress, and that change is largely due to rapidly changing technology. The entire world depends on the online network that has radically changed our perspective of how business should be managed. The faster a company adapts, the more quickly that company can outpace its competitors, and a new approach that is attracting attention is called Online to Offline (O2O). This paper establishes a comparison based on O2O approach; our model considers two types of demand under three coordination mechanisms (revenue-sharing, buy-back, and quantity flexibility contracts). We demonstrate that the best outcome and the highest profit is achieved with the O2O deterministic demand under the quantity flexibility agreement. However, the stochastic demand case attains the same result. This paper presents a fruitful introduction to this emerging topic, and future research might compare several coordination mechanisms using the Stackelberg game theory.

Introduction

In business, both manufacturers and retailers aim to maximize their own profits; in order for both sides to prosper, some coordination is necessary. A popular method to disperse risk among the members of the supply chain is the contracting mechanism (e.g. revenue-sharing, buy-back). If contracts are implemented in an efficient and effective way, they can improve the overall outcomes of the entire channel. Over the past decade, businesses have transformed because of technological advancements; therefore, coordination methods also need to adapt. One of the two most promising coordination methods is called Online to Offline (O2O). It is important to emphasize that O2O is considered a new and innovative approach that may cause major changes in numerous industries. Hence, the presented paper carries timely significance. Ding and Jiang (2015) define O2O in this manner: “O2O, online to offline, means enterprises provide discount, information and services through internet to attract consumers’ attention and make them effect payment online and enjoy services offline, which could enhance consumer satisfaction and meet personalized requirements” (Ding and Jiang, 2015). Implementing an O2O system is a complex matter, and a coordinated supply chain is required to do so properly. While the coordinated channel is required, it is useful to analyze a non-coordinated case as well to see how the profit functions differ from each other. Current research has not yet formulated an O2O approach to coordinated and non-coordinated supply chains under the presented settings. Hence, this paper presents a significant contribution to the literature by incorporating an innovative O2O approach in three coordination mechanisms. To compare contracts under stochastic demand, we use a numerical example to obtain answers to our research questions.