1. Introduction
The central theme of any supply chain is the trade-off between manufacturer and retailer. Different strategies were developed for both the supply chain players to optimize the cost or the supply chain’s profit. A smooth supply chain is always beneficial for any industry. Most industries are currently based on supply chains, where the manufacturer and the retailer control supply chains. Efficient SC is achieved when both the manufacturer and the retailer are satisfied and optimize their profits and costs. To satisfy both manufacturers and retailers, researchers have developed different models using new concepts and ideas. A supply chain is sustainable when the economic, environmental, and social benefits of all stakeholders are considered over a long period (Seok et al. [
1]). Sustainability encourages businesses to frame decisions regarding environmental, social, and human impact for the long-term, rather than on short-term gains such as next quarter’s earnings report. It influences them to consider more factors than merely the immediate profit or loss involved. Sustainable development means the fulfillment of the requirement of stakeholders (Chowdhury et al. [
2]). Chowdhury et al. [
2] proved that concomitant with the changes in the stakeholders’ priorities of the sustainability requirements, the organizational sustainability practices, strategies, and capabilities also change over time. The supply chain sustainability brings a better conceptual understanding of the dynamic changes in stakeholder requirements and allows managers to choose the optimal strategies and make astute decisions while balancing the economic, social, and environmental viability simultaneously. A sustainable supply chain is essential (Chowdhury and Quaddus [
3]). Moreover, a sustainable supply chain improves the performance of the market. Chowdhury and Quaddus [
3] developed and validated a multidimensional scale of supply chain sustainability and investigated the importance of supply chain sustainability on market performance through a mediated-moderated modeling approach. Moreover, they proved that supply chain managers would adopt appropriate supply chain sustainability practices and governance mechanisms to reduce sustainability risks and improve market. performance. In the current study, a sustainable supply chain model is developed under the consideration of economic, environmental, and social benefits along with O2O retailing strategy, making the system more sustainable compare to the traditional one.
To make the supply chain more sustainable, the concept of a smart O2O retailing strategy (Sett et al. [
4]) is adopted in this current study. Nowadays, human beings love to spend their time on smart devices like smartphones, laptops, or computers. Thus, researchers also try to develop some strategies based on human behavior or useful for humans. Owing to the massive use of smartphones, researchers try to develop their models under the consideration of online advertisement systems. The thinking and the lifestyle of people were changed unexpectedly due to the Internet’s acceptance and frequent mobile internet evolution. Thus, e-commerce had a significant impact on optimizing the profit or cost for any industry. Online-to-offline (O2O) takeaway, as a specific e-commerce form, combines O2O with traditional industry. This e-commerce model provided customers a novel opportunity to choose their required product offline and paid online to get the product in his/her doorstep or workplaces. Online-to-offline business strategy is one of the most useful strategies in those days to optimize system profit or cost. In the O2O strategy, a customer can buy their product through online mode or offline mode. In this strategy, customers can choose their products online, and products will be delivered to the customer’s doorstep in offline mode.
In parallel, a customer can buy his/her required product by visiting any retailer’s shop, i.e., the whole process of choosing and buying the product made through offline mode. Many companies have been criticized for exploiting cost-cutting measures such as offshoring production to obtain cheaper labor. Although beneficial for the bottom line, this practice often comes at the price of compromised worker safety and security. As products are ordered online, different transport uses are reduced, which directly reduces the rapid growth of carbon emissions. That means one of the essential pillars of the sustainable supply chain, i.e., environmental benefits directly enhanced through O2O retailing strategy.
Moreover, in the online system, the retailer does not need any showroom to display the product. He/she only needs better technology to attract customers. Thus, the retailer or manufacturer can both reduce their showroom cost, simultaneously total system cost, which directly reduced the unit selling price of the product. A lower price increases the demand for a particular product, which directly enhances the profit of any system. Some consumers still believe in offline shopping due to the reliability issue. They preferred to choose the product offline. Thus, both online and offline demands are significant in those days to optimize the system profit.
With these rapid growths of e-commerce business strategy, most of the industries nowadays go for this O2O policy, which is negatively impacted for offline retailers and they provided a different type of rebate or gift to increase their profit (Pei et al. [
5]). It was observed that customers could get the same product at a lower price in an e-commerce system to compare to the offline retail shop. Moreover, the O2O system provided more service proved by Sett et al. [
4]. The e-commerce system’s disadvantage is that some unreliable e-commerce retailers provide fewer quality items to their customers. Owing to this unreliability, some customers visit the retailer shop to purchase their required product.
Moreover, to attract customers, the offline retail shop provides different discounts, which was beneficial for the customers, and customers can physically check its quality. Thus, in this research, a model is developed where both e-commerce and offline sell are considered under the supply chain environment. Two different prices for the same product were considered, where one is for the online price, and another is for offline price. Moreover, the demand for the product, both online and offline, depends on the selling price. The current study developed based on online and offline demand for a particular product. Due to the O2O retailing strategy, a particular product’s demand increases, which directly increases the total supply chain’s profit. Thus, the most vital pillar of the sustainable supply chain, i.e., economic benefit, directly increases through this smart O2O retailing strategy. Moreover, to deliver those products offline, which were ordered online, some labor is required, which means the O2O retailing strategy also takes care of the supply chain’s social benefits. Thus, the use of the O2O retailing strategy makes a supply chain more sustainable. The stock situation can happen for both online and offline sales. Thus, backorder plays a significant role for any supply chain industry (Wee et al. [
6], Sarkar et al. [
7]). Moreover, lead time has a significant impact on any supply chain model (Sarkar and moon [
8]).
Different researchers developed several supply chain models under the consideration of backordered or lead time, but an O2O system under the consideration of backordered and lead time, where demand depends on online and offline selling price, still a significant gap in research in this direction, which was fulfilled by this model. This study proves that the use of an O2O retailing strategy makes a supply chain more sustainable. Moreover, as it is challenging to find the lead time’s exact distribution, two cases were developed under the consideration of normally distributed lead time and distribution-free approaches for the lead time distribution. The novelty and research gap in the literature and its uniqueness compared to existing literature are summarized in
Table 1.
The existing research related to this field is described in the next section, whereas the actual problem definition and Notations and assumptions are provided in
Section 3.
Section 4 contained the model along with the special cases for the normal distribution model and distribution-free model. Numerical examples for different cases along with a graphical representation are presented in the next
Section 5.
Section 6 contained the effect of critical parameters as a Sensitivity analysis. Finally, some concluding remarks, limitations, and future extensions are provided in
Section 7.
4. Mathematical Model
Sustainable development is needed to recover human beings’ dynamic way of life in the current social crisis. Moreover, the online business makes this supply chain even stronger. The mentioned model refers to a sustainable green supply chain with a single vendor and a single buyer. Demand depends on the price, quality, and service facility based on the current market. Another facility of online-to-offline makes the model more realistic. The different cost of vendor and buyer is discussed separately in the following section.
4.1. Retailer’s Profit
The buyer is an essential member of this model through which products can be reached before the customer’s hand through online or offline mode. Here, the buyer has tried to increase profits by adopting various ways such as service facility, reducing ordering cost, technology development. The cost described below has been considered in favor of the buyer.
4.1.1. Holding Cost (HC)
It is an essential factor in the cost incurred by the buyer. It is not to say that the products from the vendor to the buyer will be sold immediately, thus it is necessary to stock them. This type of investment is essential in reducing lead time and for customer attraction and satisfaction. The following formula describes the holding cost.
4.1.2. Ordering Cost (OC)
The ordering cost means when the buyer gives the information to the vendor regarding the required quantity of products, product quality, and market demand, then it has been utilized. Nevertheless, in this supply chain online-to-offline business strategy, vendors always try to utilize a smart policy as their order policy, i.e., through a smart system. Therefore, ordering process is done so quickly with lower investment. Thus, the ordering cost be such follows.
4.1.3. Investment for Improve the Service by Reducing Ordering Cost
In this new strategy, the service facility is improved, but the cost is less. For example, do everything online without sending any member to the ordering policy, without looking at the samples. In this case, the ordering cost can be reduced using a single, convenient network without increasing the cost on different networks. Besides, through this technique, ordering policy becomes so quicker and smarter. Thus, the required cost formula for such investment is as follows.
4.1.4. Backorder Cost (BC)
Backorder cost is a sensitive issue in today’s competitive market. Nowadays, everyone’s time is of the essence, so customers always want to immediately get what they need. In that case, there should be little gossip between the order and delivery of the products. Depending on the lead time between order receive and given delivery, the backorder can be divided into two parts: partial backorder and full backorder. If the delay-in-delivery customer cannot wait for another buyer, it must be fully backorder. If the customer waits for the delivery, although there is delay-in-delivery, it is entirely back. Fully backorder mainly depends on the behavior of the buyer and the crisis of shortages of the products. Altogether backorder has negative impacts on the business process through less popularity.
Therefore, planned backorder considers the following cost expression.
4.1.5. Technology Development Cost (TDC)
It is an important platform to survive in the current competitive market. It is beneficial in online-to-offline business. Through such a cost, buyers order the products, advertise them, display stock, retrieve the customer’s order, deliver timely feedback, receive feedback, and know the improvement level. Customers and supply chain members greatly benefit from this technology investment. However, moving toward a sustainable supply chain, the O2O supply chain takes a significant role, and it is too important to develop the technology for a better service, which makes the system more sustainable. The following expression indicates such investment.
4.1.6. Lead Time Crashing Cost (LTCC)
It is a turning point of online-to-offline green sustainable supply chain management. It depends on the lead time, buyers’ popularity, business level, and length of stay in the competitive market. If a long-term delay-in-delivery occurs, the buyer has to incur additional costs such as a gift policy to retain the customer. Besides full backorder, the business’s loss is also enclosed within the lead time crashing cost. Thus, the mathematical expression of this cost be such that
Therefore, the retailer’s total cost is given by
The revenue for the retailer is
, where
purchasing cost of the retailer. Thus, the profit function for the retailer’s in O2O channeling along with batter service is given by
4.2. Manufacturer’s Profit
The vendor produces and sells products according to retail’s orders. The main issue for the vendor is the products, which reduces the environmental pollution as well as sustainable development of the society through supply chain. Besides, vendor’s effectiveness also importance for the strong supply chain management. The considerable shortages are completely backlogged. The different costs related to the vendor are described in details in the following section.
4.2.1. Setup Cost for Supply Chain Model
By investing in a production setup, the equipment can be prepared to process different batches of goods. By investing one’s time, the output over the entire cycle time and the next time can be obtained. It is the essential cost of starting a business and running it efficiently. Depending on the developed setup, the production process improves at a rapid pace. Besides the production of green products, the vendor should focus on it through an important issue. Here, the setup cost is considered as
4.2.2. O2O Installation Cost
For running a smooth O2O supply chain, O2O installation is necessary. A fixed cost is added to install the O2O configuration. The cost is the summation of the cost for design the web page
, cost for purchase a host from the internet
, visualization of web page
, and labor charges
. Thus, making the system more sustainable, O2O installation cost takes a significant role. The cost is given by
Thus, O2O installation charges throughout the cycle are given by
4.2.3. Carbon Emission Cost for O2O Supply Chain Model
It needs environmental improvement. Nevertheless, in this proposed model, due to the single-setup-multi-delivery policy, the shipment number increases, and environmental pollution increases with the proportional relation with the number of shipments. Companies can achieve their sustainable needs by cutting emissions, lowering their energy usage, sourcing products from fair trade organizations, and ensuring their bodily waste is disposed of correctly and with as small a carbon footprint as possible.
Therefore, the effects of carbon on the environment are considered, fixed, and variable carbon emission costs for the vendor are contemplate in this model. Thus, the fixed carbon emission cost for the vendor is
and the variable cost concerning the number of received shipments is (
). Thus, the total carbon emission cost is
4.2.4. Transportation Cost for O2O Supply Chain Model
O2O supply chain management can only progress through strong transportation. The produced green products can reach before customers hand only through quick transportation within the said time. Besides, another application of the single-setup-multi-delivery policy makes transportation easier and reduces the setup cost. Due to this SSMD policy, the transport’s number increased, and both fixed and variable carbon emissions are contemplated for quality improvement.
Thus, the cost of transportation is .
4.2.5. Investment to Improve Process Quality
Defective production is an essential factor for a production system, which gives uncertainty to a supply chain. A production system is reliable when the top products produced are perfect. Here, the vendor invests capital for improving the quality of the products to reduce the production of defective products, i.e., to make the system in-control from out-of-control. However, moving toward sustainable production is often a complex process for companies. By basing decisions on longer timelines, some of the higher upfront investments in efficiency and renewable sources are easier to justify. Companies can implement the zero-waste production process to make the system more sustainable. Thus, process quality improvement directly helps to make a production system more sustainable. The number of defective items is
, and the quality improvement is given by
4.2.6. Holding Cost of the Manufacturer
The holding cost yields a substantial inventory as well as active supply chain management. All unsold products are stored through this type of investment. It is an essential constituent of the total supply chain cost. Therefore, the holding cost can be calculated (see
Figure 1).
Therefore, the manufacturer’s total holding cost is given by
Thus, the manufacturer’s annual total cost is given by
The manufacturer’s revenue is given by
Then, the profit function of the manufacturer is given by
Thus, the retailers’ and manufacturers’ total profit is presented in Equations (
2) and (
3). Thus, the joint total expected annual profit of the green supply chain is given by
4.3. Normal Distributed Model
Assuming that the lead-time demand is normally distributed, the retailer’s expected shortage quantity can be calculated as
where
,
and
being the mean and standard deviation, respectively.
Therefore, for demand with mean
and standard deviation
during the lead-time, the expected shortage quantity is given by
One can have
, and further assuming
, the above equation takes the following form:
where
is the standard normal probability density function.
Assuming
one can have
Then, the above equation can be rewritten as
4.4. Distribution-Free Approach
In many practical situations, the lead time distribution is unknown. As a result, one cannot calculate the expected shortages per replenishment cycle
and instead apply the min-max distribution-free approach, which has been made easier by Gallego and Moon [
10]. In this manner, one can find the least favorable distribution function in
F for each decision variable and then minimize the decision variables’ total cost. Therefore, the problem is reduced to
the concept of Gallego and Moon’s [
10] approach is applied here with the reorder point as
. One can obtain an upper bound of the expected shortages per replenishment cycle as
Moreover, this upper bound is tight by Gallego and Moon [
10]. The value of the backorder rate
is expressed by using the above inequality as
Therefore, the problem reduces to as follows in which represents the worst distribution.
In this model, the defective rate , where follows (1) Uniform distribution, (2) Triangular distribution, and (3) Double triangular distribution.
The total profit function is nonlinear. Due to the high complexity of these highly nonlinear equations, it is too challenging to find analytic solutions. Thus, optimum profit and the decision variables’ optimal values are obtained numerically, which were provided in the next section.
8. Conclusions
A sustainable O2O supply chain model under the consideration of price-dependent demand was developed in this current study. Due to rapid growth in the e-commerce business strategy, in this model, two different costs and two different demands for the same product are considered, where one product sells through two different channels online and offline. Naturally, the product’s price offline is slightly higher than online channels due to increased costs in advertisements, retail shop to display the product, and labor charges. Though the product’s price in the offline channel is slightly higher, some customers prefer to visit the store to purchase particular products due to service quality. The effect of the backorder and lead time is also considered in this research. Some exceptional cases were described by considering normally distributed lead time demand and distribution-free approaches for lead time. The numerical result shows that the supply chain’s profit was optimized for the normal distributed lead time. The total system profit was optimized along with the optimized value of the selling price of two different channels, per batch shipment size, safety stock, lead time, ordering cost, and the probability for shifting in-control to out-of-control state.
Integer optimization for batch size and lead time is a limitation of this model. Another limitation of the current study is the fixed production rate. Moreover, the fixed setup cost for the manufacturer is another limitation of this model. In the online channel, the product was ordered online but delivered to the customers offline. Like robots or drones, some electronic devices can also be done this transportation, representing an interesting future research direction. This model can also be extended by considering some offers or gifts paid by the offline seller to attract customers and increase the system profit. One can explore this model by considering the product’s quality or considering variable production rate Bhuniya et al. [
60].