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Features of Coordination Schemes

There are many types of channel coordination schemes, but they are incomplete, and the considered classes are all disjoint. Some of the features of coordination schemes are:

1. Problem Characteristics
2. Number of Products
3. Demand Characteristic
4. Risk Treatment
5. Shortage Treatment

Problem Characteristics

Many of the distribution models take care of either a one-period horizon or a two-period horizon with forecast updates. In the latter, the production can be based on the preliminary forecast with normal production mode or on the updated forecast with emergency production, which means shorter lead-time, but higher cost.

Apart from this, the horizon can consist of multiple periods and it can be even infinite. The practically most widespread approach is the rolling horizon planning, i.e. updating and extending an existing plan in each period.

Number of Products

Mostly all systems in coordination take care of only one product. Also, some models look at the unique cases of substitute or complementary products. Taking on more products, in this case, is necessary if technological or financial limitations like capacity or budget limits pertain.

Demand Characteristic

Here the demand can be uncertain or deterministic. Also to some extent, it can be considered static which is inactive or constant over time, or dynamic which may vary with seasonality.

Risk Treatment

In most of the distribution models, the channel partners are considered to be at risk. Here they intend to increase their expected profit or lessen their expected costs. Another factor might be risk-averse players who could find an acceptable trade-off with an effect on both the expected value and the difference in the profit.

Shortage Treatment

Many distributors differ in their attitude toward stockouts. There are some backlogs as well when the demand must be fulfilled later at a lower price or lost sales which also consists of some theoretical costs e.g., loss of goodwill.

Some distributors include a service level limitation, which constrains the occurrence or quantity of needed stock-outs. A 100% service level can be brought in with additional or emergency production like overtime, outsourcing, etc for higher costs.

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