1

RESEARCH ARTICLE

An Innovative Collaborative coordination approach for Manufacturer-

Retailer Sustainable Supply Chains: Revitalizing Expired Products
through product repurchase agreement

ABSTRACT
Supply Chain Management (SCM) has evolved to embrace sustainable supply chain practices
that focus on reintegrating waste products into production and consumption cycles. This research
explores a sustainable supply chain model involving a retailer and a manufacturer, emphasizing
regenerative technology to extract value from expired products. The study also investigates
coordination contracts within the sustainable supply chain, particularly the use of a product
repurchase agreement for expired products. The primary objective is to assess the effectiveness
of the supply chain initiative, evaluate profit-related decisions for supply chain members, and
establish a product repurchase agreement to equitably distribute benefits resulting from the
partnership. The study employs a two-tiered sustainable supply chain model involving a retailer
and manufacturer. It utilizes technology to process expired products, transforming them into
"Revived merchandise." The research evaluates profit-related decisions for supply chain
members and explores the establishment of a product repurchase agreement. A sensitivity
analysis explores the impact of key criteria, including replenishment cycle time, demand mean,
demand standard deviation, and recycling capacity. Insights from the analysis emphasize the
importance of shorter product shelf life, higher demand means, and market stability in
optimizing supply chain performance through cooperation and technological advancements.
Additionally, the study underscores the need for financial support to maximize the potential of
waste-reprocessing technologies.
Keywords: Sustainable supply chain management, revived expired merchandise, Collaborative
coordination approach, Product repurchase agreement, Joint financial commitment, Sustainable
Economy (SE)

1. Introduction
Supply Chain Management (SCM) has been a crucial field, bringing together manufacturers,
suppliers, and various stakeholders to streamline material flow, meet service level criteria and
improve efficiency. Over the years, supply chain management (SCM) has undergone
development, with a growing focus on optimizing efficiency and creating value by integrating
and coordinating the various participants in the supply chain. This evolution encompasses the use
of various techniques and strategies, as well as the management of the flow and distribution of
goods and services.
In recent times, supply chain networks have extended their focus from the traditional linear
production and delivery of goods to encompass a broader range of activities in connection with
commodities that have been used up, like recycling, disposal, and reconstruction (Siddiqui et al.,
2023).This transition towards sustainability is exemplified by the "zero waste" concept, which
encourages researchers and industry professionals to discover ways to reintegrate waste
incorporating itself into the intricate web of both production and consumption processes, this
pivotal transformation in the realm of supply chain oversight is often referred to as the
 2

Sustainable Economy (SE) or Sustainable Supply Chain. While SCM and SE have historically
been separate disciplines, an escalating curiosity exists regarding the exploration of prospective
harmonies stemming from the infusion of Sustainable Economy (SE) principles into the realm of
Supply Chain Management (SCM) and its sundry operational facets, encompassing
manufacturing, procurement, logistics, and warehousing. Scholars believe that this integration
has the potential to significantly advance sustainability efforts (Meihui et al., 2023).
(Momeni et al., 2022) provide A thorough definition of sustainable SCM, describing it as the
"incorporation of Sustainable thinking into supply chain management and the ecosystems it
operates in, both industrial and natural." This integration aims to systematically restore
technological materials and revive biological materials aligned with a zero-waste aspiration,
which encompasses creative advancements throughout the product/service life cycle and
engaging all stakeholders, including service providers, manufacturers, users, and consumers.
A critical distinction highlighted by (N. Zhao et al., 2023) lies between restorative and
regenerative procedures, restorative methods encompass the recuperation of technological
materials or artificial components via activities like refurbishment, repair, recycling, and
remanufacturing. Conversely, regeneration concentrates on reintegrating seemingly discarded
waste back into both the production cycle and the natural environment, potentially extracting
nutrients for alternative uses. This viewpoint characterizes a sustainable supply chain as a closed-
loop system that fully embraces the notion of zero waste by incorporating regenerative and
restorative approaches. Numerous innovations within sustainable supply chains exemplify the
potential of this approach, such as the utilization of recycled PET bottles in construction, the
conversion of waste cooking oil into biodiesel, and the transformation of food waste into
methane or fermentation materials (Bhatti, Jamali, et al., 2023).
This research article explores a two-tiered A sustainable supply chain comprising a producer
and a retailer, with a specific focus on their investment in regenerative technology to extract
value from expired dairy products. This investment is centered on the backward movement
within the supply chain, where expired primary products are sent back to the manufacturer to
generate added value. This process of revitalization, which yields significant cost savings,
involves the conversion of expired products into agricultural fertilizer. To promote integration
and joint investment among supply chain partners and assess the value generated through this
innovation, the study also investigates coordination contracts within the topic of the sustainable
supply chain, which has not garnered significant focus in existing literature (Khaskhelly et al.,
2023).
The coordination contract employed in this study to align the manufacturer and retailer is a
product repurchase agreement. Unlike traditional product repurchase agreement, where
manufacturers commit to repurchasing unsold products at predetermined prices to alleviate
retailer concerns and reduce costs, the proposed product repurchase agreement in this paper is
specifically designed for expired products lacking inherent value without the presence of
regenerative processes, as further explained later on (Majeed et al., 2018).

2. Literature review
The literature review in this research article examines three main domains: "deterioration
products," "coordination contracts," and "sustainable supply chain management." This
comprehensive review lays the groundwork for understanding the study's context and
significance by shedding light on gaps within the current body of research while emphasizing the
distinctive contributions of the present investigation.
 3

2.1 Management of Deterioration products

A substantial volume of research has been dedicated to the management of products that
deteriorate or expire within supply chains. (Yang et al., 2013) introduced a model for handling
deteriorating products within closed-loop supply chains. Their approach involved robust
optimization techniques to maximize profits, accounting for unpredictability in the process. (Su
et al., 2019) (Heydari et al., 2018) devised a model that coordinated production planning and
distribution decisions for deteriorating dairy products, aiming to minimize overall costs,
encompassing production, inventory holding, packaging, and deterioration costs. Other scholars,
such as (Salami et al., 2022) and (Braz & de Mello, 2023), have focused on developing efficient
algorithms to address large-scale problems in this context.
(Saha et al., 2016) introduced exploring the impact of order quantity discounts on waste
generation through the utilization of a sourcing-production inventory (SPI) model aimed at
managing raw material deterioration. Further research has explored various aspects of
deteriorating products, including routing challenges (Heydari et al., 2018), facility location and
item routing (Wang et al., 2017), and profit-sharing mechanisms using game theory (Mondal et
al., 2022). In these studies, the unpredictability of demand plays a pivotal role in shaping
inventory decisions and the accumulation of unused or deteriorating products remaining at the
conclusion of replenishment cycles.
While the model proposed in this research accounts for unpredictability and its impact on
supply chain decisions, it differentiates itself by highlighting the supply chain's unique capacity
to recover value from expired products. This distinctive feature reduces the severity of expiration
concerns compared to previous studies, contingent upon investments and their effectiveness.
2.2 Supply Chain Coordination Agreements
In the realm of SCM, a wide array of coordination contracts has been put forth to harmonize
decision-making among participants, optimize overall profitability, and promote collaboration.
These contracts range from straightforward agreements like wholesale price contracts to more
intricate arrangements such as two-part tariff contracts, revenue-sharing contracts, product
repurchase agreements, discount contracts, and combined contracts (Sasikumar & Kannan,
2008). The imperative for coordination and cooperation within supply chains becomes
particularly evident when the aim is to curtail costs, particularly in scenarios involving high
spoilage costs. This inclination aligns with the principles of the sharing economy and the
sustainable economy, as underscored in (Östlin et al., 2008).
Recent research has ventured into coordination contracts within the domain of sustainable
supply chains (Chen et al., 2023). For instance, (Rajabzadeh et al., 2023) suggested a specialized
expense allocation system designed for a supply chain encompassing manufacturers and retailers,
including multiple products and capacity constraints. This research accentuated the significance
of capacity constraints in preventing optimal order quantities from spiraling towards infinity
under fixed deterioration rates.
(Hosseini-Motlagh et al., 2023) explored diverse configurations of product repurchase
agreement under a fuzzy environment, where historical data concerning profit functions were
unavailable. (C. Zhao et al., 2022) delved into a supply chain characterized by short product
lifecycles, stochastic demand, and controllable lead times. They employed a product repurchase
agreement to fine-tune order quantities and distribute the investment costs.
Despite the substantial body of research dedicated to coordination contracts within forward,
reverse, and closed-loop supply chains, the softer aspects of sustainable supply chains have
 4

attracted relatively less scrutiny. The coordination contract advanced in this research aligns with
the trajectories proposed by prior work in the context of sustainable supply chains.
2.3 Sustainable Supply Chains
Recent research endeavors have explored the enablers, barriers, and business models of
sustainable supply chains (Khokhar et al., 2022). (Wang et al., 2017) investigated the role of sale
efforts, delivery times, and hybrid remanufacturing as enablers of an environmentally friendly
and eco-conscious supply chain that engaged both manufacturers and distributors. (Hosseini-
Motlagh et al., 2022) undertook a comprehensive economic and environmental assessment of
compost manufacturing using food waste an indicator of a sustainable economy.
(Huang et al., 2013) conducted an evaluation of sustainable waste handling practices in the
food supply chains of the United States, all within the framework of the sustainable economy.
They harnessed the Best-Worst Method to prioritize criteria aimed at enhancing sustainability.
(Mahdiraji et al., 2019) presented a review of the barriers, drivers, and practices of the
sustainable economy through the lens of supply chain dynamics. (Su et al., 2022) scrutinized
factors influencing residents' waste sorting behavior within the framework of the sustainable
economy.
Efforts to minimize waste constitute a fundamental concern in managing sustainable supply
chains. (Maheshwari et al., 2023) put forward a novel methodology for appraising the obstacles
to carbon regulatory analysis in pursuit of zero carbon. (Bhatti, Raza, et al., 2023) sculpted a
cooperative and sustainable supply chain, navigating product deterioration and carbon emissions
to reduce operational costs and emissions. (Junejo et al., 2023) introduced the idea of eliminating
waste in the food supply chain, with expired product processing serving as a cornerstone for
establishing sustainability.
Despite the emphasis on coordination contracts within sustainable supply chains, their softer
aspects have been relatively underexplored. The research in this article synchronizes with prior
work in the realm of sustainable supply chains, aiming to address this void.
2.4 Research Gaps
In this research to underscore the voids more effectively in the existing literature addressed
within this paper and to provide a condensed overview of the reviewed studies, the study has
undertaken a comparison process, as outlined in Table 1. Within this table, the research papers
are listed categorized based on their relevance to the following criteria: 1) Sustainable supply
chain, 2) Coordination agreements in supply chains, 3) Decaying products, 4) Assessment of
technological methodologies or administrative resolutions, and 5) Consideration of
unpredictability. Considering the insights from Table 1, along with the discourse presented in
both the introduction and the literature review, review has pinpointed several discernible
distinctions between the present study and the existing corpus of literature:
I. Technological Capacities and administrative Interventions
While most studies concentrate on administrative strategies to mitigate the adverse impacts
of expiring products, the current research endeavors to encompass both technological capabilities
and administrative interventions. This comprehensive approach holds the potential to yield
supplementary enhancements in supply chain performance.
II. Regenerative Capacities
 5

The study appraises the supply chain's potential to recoup value from expired products, an
aspect that has not received extensive coverage in prior research.
III. Reverse Product Flow
The research considers a reverse product flow from retailers to manufacturers, in contrast to
previous studies primarily focusing on customer returns to collection centers.
IV. Products repurchase agreement focus
The proposed Product repurchase agreement is tailored to address the return of expired
products, as opposed to unsold products, setting it apart from prior contract models.
V. Consideration of unpredictability
The incorporation of demand unpredictability, despite amplifying problem complexity,
enriches the model's fidelity, aligning it more closely with real-world supply chain scenarios.

Table 1: The contrast between the present study and the examined article
Sources Sustainable Coordination Products Supply chain tactics Unpredictability
supply agreements
chain in supply
chains
Durable Decaying Technological Administrative
* * *
* *
* *
* * *
* * *
*
* * * * *
* * * *
* * * * * * *
* * * * *
* * * *
* * *
* * * * * *
* * * * *
* * * * * *
* * *
* * * *
* * * *
* * * * *
Current * * * * * *
study

This research tackles emergent concerns within the context of sustainable supply chains, with
a particular emphasis on the necessity for coordination contracts and an exploration of the
distinctive dynamics associated with the regeneration of expired products. These facets signify
noteworthy research gaps within the existing literature.
 6

3. Methodology
In the proposed model, there is a forward movement of goods from the producer to the seller,
with a corresponding reverse movement from the seller to the producer, primarily involving the
return of expired items to the supply chain. Utilizing technology is essential to handle these
expired products and extract some value by converting them into a new product known as
"Revived merchandise." The product flow within the supply chain is illustrated in Figure 1. This
paper's main research goal is to evaluate the efficiency of this supply chain endeavor, which
includes a
Retailer
Q
Manufacturer  Selling dairy items
 Re-selling the dairy products that
 Producing dairy items
pc . ¿ have expired and returning them
to the manufacturer.

 Utilizing the treated

 Transforming dairy products
fertilizers in the growth of
into organic plant fertilizer
crops

Forward flow
Reverse flow
Figure 1: The movement of goods within the examined sustainable supply chain.
comprehensive examination of profit-related choices for supply chain members before and after
implementing cooperative efforts. Furthermore, the paper explores the establishment of a product
repurchase agreement to equitably distribute the benefits, if any, resulting from the partnership
among supply chain members.
As depicted in Figure 1, the retailer initiates orders for the primary products from the
manufacturer. It is presupposed that the retailer utilizes a periodic assessment inventory
management approach, aligning the replenishment cycle time (RCT) with the product's shelf life.
This presumption holds significance when the distribution system retrieves expired items for
eventual return to the manufacturer while simultaneously delivering new orders with the
maximum shelf life. Consequently, at the end of each cycle, expired products are collected and
replaced with quantity of Q units of fresh, fully functional products, with no backlog allowed in
the model due to customer tendencies to switch to other retailers in the case of product shortages,
particularly within the context of the dairy products case study.
Furthermore, the retailer orders products in a manner that maximizes its profit, leading to the
manufacturer implementing two strategies to improve its profitability and the overall supply
chain. Firstly, they invest in technology that can transform expired products into items with
alternative uses, rather than disposing of them as waste. In the dairy products case study, for
example, expired products are repurposed to create an organic nutrient-rich fertilizer. Secondly, a
product repurchase agreement is introduced to encourage the retailer to order more products
 7

without worrying about unsold or expired items. This agreement also helps in aligning the supply
chain in an integrated manner, ensuring that the entire supply chain maximizes its profit and that
all members receive profits at least equal to their individual gains. It's important to note that
wholesale and retail prices are determined externally, especially for products subject to a cost-
plus pricing mechanism regulated by authorities, which set profit margins for producers and
distributors.
After outlining these assumptions, the paper introduces the symbols utilized in the models. It
then goes on to present and discuss both the non-integrated and integrated supply chain models.
Furthermore, the paper illustrates the manufacturer and retailer models within the context of the
product repurchase agreement. Lastly, it provides an explanation of how contract criteria can be
adjusted to harmonize the decision-making processes of the integrated and non-integrated supply
chains, ultimately achieving coordination through the product repurchase agreement.
3.1 Symbols Used in the Model
The symbols employed in the model are as follows:
Criteria Explanation
OC The annual expense incurred by the retailer
for placing orders
RCT The period of the replenishment cycle,
representing the shelf life of the product,
measured in years.
HC The yearly expense of holding each unit of
the product
PC The retail price established for each
individual unit of the product.
WP The wholesale price assigned to each unit of
the product
C The cost involved in manufacturing each unit
of the product
x̄ The mean yearly demand for the product,
quantified in units.
σ The variation in the yearly demand for the
product, expressed as the standard deviation
in units.
DC The expense per unit for disposing of expired
products
SP The price at which the Revived merchandise
is sold per unit
PCR The production cost per unit for the Revived
merchandise
RCAP The manufacturer's maximum capacity for
revitalizing products within the integrated
supply chain, measured in units.
 8

Variables Explanation
Q The retailer's quantity of orders (in units)
RS The retailer's level of service
PC The maximum acceptable proportion of
expired products that can be returned under
the terms of the product repurchase
agreement.
RP The price at which the returned product is
repurchased in the product repurchase
agreement (in dollars per unit)
3.2 Models without Supply Chain Integration
In the non-integrated model, there is no capacity to handle expired products. Consequently,
expired products not only provide no value to the supply chain but also result in additional
disposal costs. In this non-integrated approach, both the retailer and the manufacturer operate
independently, solely pursuing their individual interests.
As mentioned earlier, at the beginning of each period, the expired products (i.e., the
remaining products from the previous period) are removed from the warehouse, and Q units of
new, fully functional products are added to the warehouse. It is assumed that Q exceeds the
average demand for each period. If we consider the mean and standard deviation of demand
during each period as μ and σ, respectively, the average inventory at the end of the period
becomes Q - μRCT. Consequently, the average inventory over the period is calculated as Q -
μRCT/2, resulting in a holding cost of h (Q - μRCT/2).
The service level, denoted as α, is defined as the probability of experiencing a shortage
during the replenishment cycle time being less than α. This definition is equivalent to the integral
of the probability density function of demand during each period, denoted as fd(x), being greater
than Q. An alternative criterion, RS, can also be defined such that the cumulative probability of
the standard normal distribution, denoted as FZ(.), equals α, satisfying FZ(RS) = α. If demand
follows a normal distribution function, the variable Q can be expressed in terms of μ, RCT, σ,
and RS according to Equation (1) (Refer to Appendix A for detailed information).

Q=μ . RCT + RS . σ . √ RCT (1)

The anticipated levels of inadequacy and the amount of expired products during each
replenishment cycle duration are represented as E (X - Q) + and E (Q - X)+ , correspondingly.
These expressions are calculated as indicated in Appendix B, and their specific formulations are
provided in Equations 2 and 3.
+¿= σ . √ RCT . G ( RS ) (2)¿
E( X−Q)

E( X−Q)+¿=−σ . √ RCT . (−RS−G ( RS ))=σ . √ RCT . ( RS+ G ( RS)) ¿ (3)

In the domain of statistics and probability theory, G(RS) is referred to as the "standardized
( 21π ).exp (−2z )dz ¿
2
+¿ ∞
loss function" and is formally defined as: G ( RS )= ¿ (Hailiang et al., 2023).
∫
RS
Furthermore, it can be observed that the cumulative sales amount S within a specified timeframe
is equivalent to Q - E (Q - X) +. For further clarification, please consult Appendix C. This
 9

relationship can be expressed as Equation (4) by substituting Q and E (Q -X) + with their
respective values from Equations (1) and (3).
S=μ . RCT −σ . √ RCT .G(RS) (4)
Furthermore, if it is assumed that the replenishment cycle time RCT remains constant, then
the quantity of time intervals within a single unit of time will be given by 1/RCT. Consequently,
taking into account the symbols and explanations provided above, the non-integrated model for
the retailer can be expressed as Equation (5).
pc ℘ OC
. ( μ . RCT −σ . √ RCT . G ( rs )) − ( μ . RCT +rs . σ . √ RCT ) −
dc
π r ( rs )= −hc .¿ (5)
RCT RCT RCT
Equation (5) signifies the profit of the retailer, encompassing revenue from sales minus
assorted retailer expenditures such as procurement expenses, order-related costs, inventory
carrying costs, costs associated with unfulfilled sales, and costs related to disposal for expired
products. The objective function π dc r ( rs ) in Equation (5), as demonstrated in Appendix D, it
becomes evident that this function, as depicted, exhibits a concave shape concerning the decision
variable RS. Consequently, to determine the most advantageous value for RS, the study
differentiates π dc
r ( rs ) regarding RS and equate the resulting equation to zero.
Theorem 1, which asserts that in the non-integrated model, the retailer's goal function related to
RS exhibits concavity, and the optimal RS value can be denoted as RS¿ dc, can be found by
solving Equation (6).
2 ( pc−℘ )−hc . RCT
F z ( RS ) =
¿ dc
(6)
2 pc−℘+r
Equation (6) demonstrates that higher holding and disposal costs lead to a decreased optimal
value service level provided by the retailer to customers. This observation implies that as when
the disposal cost for deteriorating products rises, the quantity of these products ordered during
each period decreases. These findings also emphasize the importance for manufacturers of
products with expiration dates to find solutions for reusing expired products and extracting value
from revived merchandise.
Furthermore, if retailers have the option to repurchase expired inventories, they are less
concerned about not being able to sell their products, which leads them to order more products
from the manufacturer in each period. Consequently, repurchasing expired products and
integrating them into the production of other goods brings a double-positive effect on the overall
profitability of the supply chain.
In this study, to define the manufacturer's objective function in the non-integrated scenario, it
is assumed that the manufacturer produces based on the retailer's orders and does not maintain
any inventory. Therefore, the profit function π_m^dc for the manufacturer in the non-integrated
case is formulated as presented in Equation (7). This profit function covers the revenue generated
from product sales at the wholesale price, with production costs deducted.

(μ . RCT + RS . σ . √ RCT )
¿ dc
dc Q (7)
π =( ℘− pc ) .
m =( ℘−pc ) .
RCT RCT
3.3 The integrated supply chain model
This section explores the integrated model of the supply chain. In this integrated approach, a
key strategy involves utilizing specialized facilities to transform expired products into new
 10

products with distinct characteristics, adding value in alternative markets. As a result, it becomes
crucial to determine the service level that maximizes the combined profits of both the retailer and
the manufacturer.
From the retailer's perspective, the supply chain's profit function comprises product sales
while deducting costs related to ordering, holding, lost sales, and the disposal of unused and
expired products. Conversely, the manufacturer incurs expenses related to producing the primary
products and processing the revived ones. However, the manufacturer contributes to the overall
profitability of the supply chain by selling the revived merchandise.
Incorporating the costs of reviving facilities, denoted as "pcr," which represents the
production cost of the revived merchandise per unit, also includes the cost of generating capacity
per unit of products. However, external constraints, such as financial limitations, may impose an
upper limit on the maximum regeneration capacity, referred to as "rcap." Therefore, taking into
account the profit of the integrated supply chain and the capacity constraint associated with the
regeneration processes, the integrated supply chain model is defined as presented in Equation
(8).

π=
c pc
RCT
. ( μ . RCT −σ . √ RCT .G ( rs ) ) −
OC
RCT
−h . (
μ . RCT
2 ) (
+rs . σ . √ RCT −( pc−c ) .
1
RCT )
. σ √ RCT .G ( rs )−( 1−
(8)
s.t.
pc .(σ √ RCT . ( rs +G ( rs ) ) ) ≤rcap

The profit π c in the integrated model consists of several components. It includes the income
from selling products minus expenses related to ordering, holding, lost sales, and the disposal of
non-revived expired products, taking into account the production costs of the initial products,
and adding the revenue generated from selling revived merchandise, from which the revived
costs are subtracted. Additionally, there is a constraint pc .(σ √ RCT . ( rs +G ( rs ) ) ) ≤rcap which
restricts the number of products that can be revived based on the existing capacity.
In this study to discover the best solution, it's crucial to recognize that the capacity constraint
doesn't exhibit convex behavior, as demonstrated by counterexamples. For instance, with rcap =
2.5 and σ √ RCT =¿ ¿ 1.5, (ρc1, rs1) = (1.9, 0.9) and (ρc2, rs2) = (0.9, 1.9) exist two solutions that
meet the capacity constraint. However, their convex combination, (λ.ρc1 + (1 - λ). ρc2, λ.rs1 + (1
- λ).rs2) | 0 ≤ λ ≤ 2, results in the solution (ρc, λ) = (2.5, 2.5) for λ = 1, which violates the
capacity constraint. The lack of convexity in the capacity constraint makes it impossible to
employ the KKT conditions for identifying the optimal solution.
The derivative of π c concerning the variable ρc, as indicated in Eq. (9), demonstrates that if
we assume a constant value for the variable rs and presume that the marginal profit of recycled
c
∂π
products (sp-l) is in the positive range, then the expression in Eq. (9) will consistently yield
∂ pc
a positive result.

( )
c
∂π 1
= . σ √ RCT (rs+ G ( rs ) )(sp−l+ dc) (9)
∂ pc RCT
This leads us to Theorem 2, which can be stated as follows:
 11

Theorem 2. When rs is held constant, the objective function in Eq. (8) increases as ρc increases.
This means that as ρc becomes larger, the supply chain's profitability also increases.
According to Theorem 2, unless restricted by the capacity constraint, the maximum value of ρc is
1. Therefore, for different values of rs, the optimal value of ρc can fall into one of the following
conditions:
i. If σ √ RCT .(rs +G ( rs ) ) ≤ rcap, the capacity constraint does not impose any restrictions on
ρc, and the optimal value ρc* is equal to 1, i.e., ρc* = 1.
ii. If the inequality σ √ RCT .(rs +G ( rs ) )> rcap holds, then the capacity constraint limits the
potential value of ρc* as defined by Eq. (10).
¿ rcap
pc = (10)
σ √ RCT .(rs+ G ( rs ) )
Conversely, the rate of change of the term ¿ concerning rs, as described in Eq. (11), is
consistently positive. This implies that it is possible to numerically determine the value of rs that
satisfies the equation ¿= rcap, denoted as rs1. Equation (12) is then introduced to establish ρc* as
dependent on the values of rs.

∂ ¿ ¿ (11)

{
1 rs ≤ rs 1
¿
pc = rcap (12)
rs> rs1
σ √ RCT .(rs +G ( rs ))

Considering Equation (11), the objective function π c specified in Equation (8) can be
reformulated as shown in Equations (13) through (15) in the following manner:

{
c
π c (rs)= π 1c ( rs ) rs ≤ rs1 ( 13 )
π 1 ( rs ) rs >rs 1

π c1 ( rs ) =
pc
RTC RTC 2 ( )RTC ( )
( μ . RTC −σ . √ RTC . G ( rs ) )− OC −hc . μ . RTC + rs . σ . √ RTC −( pc−c ) . 1 . σ √ RTC .G ( rs )−
(14)

π c2 ( rs ) =
pc
RTC
. ( μ . RTC−σ . √ RTC . G ( rs ) ) −
OC
RTC
−hc .
μ . RTC
2 (
+rs . σ . √ RTC − ( pc−c ) .) 1
RTC( )
. σ √ RTC . G ( rs )−
(15)
The interpretation and components of Equations (14) and (15) closely resemble those of
Equation (8). The primary distinction between them and Equation (8) lies in the replacement of
'ρc' with the values specified in Equation (12), considering the conditions applied to 'rs.' As per
Equations (13) to (15), π c ( rs ) constitutes a smooth function based on the variable 'rs.' Therefore,
the optimal 'rs' can be determined by examining the critical points of this function, which include
both boundary points and points where the derivative of π c (rs) with respect to 'rs' equals zero, as
outlined by (Khaskhelly et al., 2022). These extreme points can be denoted as 'rs,' defined as a
 12

c c
∂π ∂π
set containing values of 'rs' such that rs = rs1 or rs⃒rs =rs 1∨ 1 =0∨ 2 =0. Theorem 3,
∂rs ∂rs
expressed below, is employed to ascertain the most favorable value of 'rs.'

Theorem 3: In the integrated supply chain model, 'rs*c,' representing the optimal value of 'rs,' is
selected from the set of 'rs' values that maximize the objective function in Equation (13), which
can be expressed as rs*c = arcmax(k∈K) π c (rs) (rs). After determining 'rs*c,' Equation 12 is
utilized to find the optimal value of 'ρc' corresponding to 'rs*c.'
Furthermore, it is feasible to achieve supply chain integration by collectively determining the
service level without the need for extra effort during the reviving process. This results in the
supply chain's profit function resembling Equation (8), where ρc is set to 0. Therefore, when
comparing the profit function of the supply chain with the revitalization technology to that of the
integrated supply chain without the technology, represented by Equation (13), it becomes clear
that the only requirement for the proposed strategy's effectiveness is that sp - l + dc > 0.
Consequently, this leads to the formulation of Lemma 1 as follows:
Lemma 1: The only prerequisite is the proposed cooperative strategy proves cost-effective when
sp + l - dc > 0, regardless of any capacity constraints.
3.4 The supply chain framework under the product repurchase agreement
In contrast to conventional product repurchase agreements, the product repurchase agreement
presented in this paper pertains to expired products rather than unsold products. Since expired
products lack value for the manufacturer unless they undergo reprocessing, the proportion of
repurchased expired items in this suggested agreement should be restricted to the manufacturer's
regenerative capacity.
In this agreement, the manufacturer repurchases a percentage of expired products,
specifically 100 times ρc percent, at a predetermined price 'rp.' As a result, the term
−dc . ( )
RTC
1
. σ √ RTC (rs+ G(rs)) in the retailer's objective function in the non-integrated
scenario (as indicated in Equation 5), the expression is substituted with the phrase
+ pc . rp .
1
RTC ( )
. σ √ RTC ( rs+G ( rs ) ) −( 1− pc ) . dc .
1
RTC
.σ √ RTC ( rs +G ( rs ) ). Consequently, the
retailer's objective function is modified to Equation (16).

π bc
dc ( rs ) =
pc
RTC
. ( μ . RTC−σ . √ RTC .G ( rs ) ) −
℘
RTC
( μ . RTC +rs . σ . √ RTC ) −
oc
RTC (
−hc .
μ . RTC
2 )
+rs . σ . √ RTC −( p

Thus, the retailer's profit function when operating under the product repurchase agreement
bc
π ( rs ) can be broken down into several components. It includes the revenue generated from
dc
sales at the retail price, subtracting the costs associated with buying products from the
manufacturer at the wholesale price, subtracting the costs associated with ordering, subtracting
holding costs, deducting lost sales costs, adding the income from selling revived merchandise,
and finally, subtracting the expenses related to disposing of the remaining expired products.
Just like in the non-integrated scenario, the concavity of π bc dc ( rs ) is established, this allows to
find the best value for 'rs,' represented as 'rs*bc,' using the first-order condition, which involves
 13

equating the derivative of π bc

dc ( rs ) concerning 'rs' to zero. Consequently, Equation (17) remains
applicable for finding the optimal service level.

2 ( pc −℘ )−hc . RTC
F z ( rs )=
¿bc
(17)
2 pc−℘ + ( 1− pc ) . dc− pc .rp

Theorem 4: When the product repurchase agreement is in effect, the retailer's profit π bc dc ( rs ) as
defined in Equation (15) exhibits a concave nature with respect to the variable 'rs.' Consequently,
the utilization of Equation (17) becomes necessary to ascertain the most efficient service level
for the supply chain functioning within a product repurchase agreement.
Once the optimal service level for the retailer as k ¿bc is established, we can outline the profit
function for the manufacturer, taking into account the processing and sale of both the primary
and revived merchandise, as described in Equation (18). This profit stems from selling the
original products at the wholesale price (which considers sales revenue minus production costs),
reprocessing the returned expired products, and then selling the resulting revived merchandise
(considering the sales revenue, subtracting repurchase costs, and deducting reviving costs).

bc Q (Q−x )+¿ ( μ . RTC +k ¿ bc . σ . √ RTC ) pc (σ √ RTC

π m =( ℘−c ) . + ( sp−pcr −rp ) . pc . E =( ℘−c ) . + ( sp− pcr−rp ) .
RTC RTC RTC
(18)
3.5 Coordination framework for the Supply Chain
Regarding the product repurchase agreement, certain key points deserve attention:
 The process of recapturing all expired products and converting them into fresh valuable
items generates income for the retailer, compensating for the losses incurred due to
unsold primary products. As a result, the revived merchandise proves to be cost-effective.
However, the capacity for processing limits the quantity of expired products that is
possible to effectively revived.
 The establishment of the repurchase price 'rp' should involve finding a middle ground
between profitability and production expenses. Within this research, the contract
parameters are configured to attain performance comparable to an integrated supply
chain.
To attain results consistent with the integrated model, the initial step involves identifying the
optimal values of 'rs' and 'ρc' by applying Theorem 3, the next step involves determining the
optimal service level consistent with the integrated model, and this is achieved by setting a
specific value for the repurchase price 'rp.' The goal is to align the service level defined in
Equation (17) with that of the integrated supply chain maintained by ensuring that
F z ( rs ¿bc )=F z ( rs ¿ c ) . Consequently, for the coordinated supply chain to have the optimal value of
'rp,' Equation (19) should be satisfied:

2 ( pc−℘ )−hc . RTC

F z ( rs )=F z ( rs ¿ c ) =
¿bc
¿c (19)
2 pc−℘+ (1−pc ) . dc− pc . rp
 14

4. Results
4.1 Practical and Numerical Analysis - A Dairy Products Sector Case Study
In this section, we begin by introducing the case study and showcasing the results of applying
the proposed models. Subsequently, a sensitivity analysis is conducted to explore how changes in
model criteria affect the results within the supply chain.
4.2 Case Study
The case study centers on dairy products that undergo a transformation into dairy powder
once they expire. This dairy powder is utilized as an organic soil fertilizer, preserving the
essential minerals and organic elements found in dairy products, while also mitigating
environmental damage associated with disposing of expired products. (Majeed et al., 2018) have
demonstrated the effectiveness of this fertilizer in enhancing soil properties, increasing nitrogen
level by 46%, phosphorus by 74%, and potassium levels by 94%. Furthermore, experimental
results indicate an 11% reduction in soil pH and significant growth in agricultural produce.
A local company in northern Iran is responsible for manufacturing this top-tier dairy
fertilizer, and it maintains strong contractual relationships with dairy product manufacturers and
distributors in the region. The demand for this fertilizer is high, aligning with sustainable
agricultural practices aimed at reducing negative environmental impacts like soil pollution. Table
2 presents the problem's criteria. Notably, In the case study, the product unit can be described as
either "kilogram" (kg) or "ton" (equivalent to 1000 kg), covering a variety of powdered products
available, while disregarding minor price variations in different packaging types.
Initially, the study describes the outcomes of the non-integrated model are presented, and by
utilizing Equation (6), the optimal 'rs' value in the non-integrated scenario is determined as 0.27,
representing a 60% probability of avoiding shortages. Consequently, the optimal retailer order
quantity 'Q' is 888.5 tons, as per Equation (1). Furthermore, according to Equations 5 and 7, the
profits for the retailer and manufacturer operating in the non-integrated supply chain amount to
dc dc
π dc = $28,604,900 and π m = $24,900,700.

Table 2: The criteria involved in the case study.

Criteria Value
Cost per order (OC) $1300
Time in a year (RCT) 0.177 years
Holding cost per ton per year (HC) $260
Product price per ton (RP) $15,900
Wholesale price per ton (WP) $9,600
Cost per ton for disposal (C) $5,500
Total demand in tons per year (x̄ ) 860 tons
Standard deviation of demand in tons per year 160 tons
(σ )
Salvage value per ton (DC) $210
Selling price per ton (SP) $4,900
Lost sales cost per ton (PCR) $1,300
Capacity of the system (RCAP) 600
 15

To determine the best solution for the integrated model, the research utilizes the equations
introduced in Section 3.4. Initially, by solving the equation σ √ RCT .(rs +G ( rs ) )= rcap yields 'rs1'
= 3.44. Secondly, considering π c1and π c2 in Equations (14) and (15), the study identifies the values
of 'rs' that make the derivatives of π c1 and π c2 equal to zero, resulting in 'rs' = 1.580 and 'rs' = 0.8,
respectively. However, 'rs' = 0.8 is not considered an extreme point as it falls outside the domain
of rs ≥ rs1 = 3.44, where the function π c2 is relevant. Therefore, following Theorem 3 and
considering π c (1.580) = $57,353,400≥ π c (3.33433) = $56,600,500, The ideal 'rs' value in the
integrated scenario is determined as 'rs*c' = 1.580. This, in turn, yields 'ρc*c' = 1, with 'Fz(rs*c)'
= 0.9400 indicating a probability of avoiding shortages of less than 94.00%. Additionally, π c
(1.580) = $57,353,400> π dc dc
dc + π m = $52,519,600. These findings confirm that the suggested
collaborative approach improves the profitability of the supply chain and elevates the service
level, better meeting customer demand.
Next, the criteria of the product repurchase agreement need to establish for the product
repurchase agreement that coordinates the supply chain, it's important to note that this agreement
should guarantee the revitalization of expired products like the integrated supply chain. Hence,
due to the absence of restrictions in the integrated supply chain's reviving process, 'ρc*bc' =
'ρc*c' = 1. Furthermore, by solving Equation (19) for the Product repurchase or repurchase price
'rp,' the study confirms that 'rp' = $8660. Utilizing the product repurchase agreement, the retailer
and manufacturer's profit functions become $31,400,400 and $27,000,100, respectively. These
results underscore the benefits of the proposed product repurchase agreement as a Collaborative
coordination approach for both the retailer and manufacturer.
In this study to validate the optimal solution, it considers an alternative scenario in which
only 30% of expired products (ρc = 0.3) are bought back at a price of 'rp' = $2050. Plugging
these values into Equation (17) yields 'rs' at 0.30, just slightly higher than in the non-integrated
scenario. The retailer places an order for 'Q' = 950.79 tons, resulting in profits of $29,700,800 for
the retailer and $24,000,700 for the manufacturer. While these profits surpass those in the non-
integrated situation, they still fall short of what the integrated supply chain achieves due to 'ρc' =
0.3 and 'rp' = $2050/ton, which are not the optimal criteria for the product repurchase agreement.
here
4.3 Sensitivity Analysis
The preceding section emphasized the effectiveness of repurchasing expired product
regeneration as a strategy to reduce expiration costs while simultaneously increasing supply
chain profitability and service levels. Nevertheless, variations in criteria can significantly impact
profitability and various other supply chain results, necessitating further exploration. This section
conducts a sensitivity analysis to investigate these effects, focusing on key criteria: mean and
standard deviation of demand, reviving capacity, and replenishment cycle time.
It's important to note that during sensitivity analysis, only the specific criterion under
consideration is altered, while all other criteria remain constant. Additionally, when expressing
changes in a criterion as percentages, +oc% and -oc% denote multiplication by coefficients
(1+oc ) (1−oc)
and respectively.
100 100
I. Alterations in the Replenishment Cycle Time
 16

In this study, the duration of the replenishment cycle (RCT) aligns with the product's shelf
life. Prolonging shelf life and expiration dates frequently requires specialized technologies like
employing sterile gases. Therefore, examining fluctuations in the replenishment cycle duration
can provide valuable managerial insights into the suggested method, its implications, and
potential alternatives.
Figure 2 depicts the profit functions of both the retailer and manufacturer in both integrated
and non-integrated settings under various RCT values. The illustration reveals that as the
replenishment cycle time extends, the benefits of integration diminish for both the retailer and
manufacturer. This suggests that for products with shorter shelf lives, collaboration between the
manufacturer and retailer becomes more critical. It also underscores the significant role of
product shelf life in motivating manufacturer-retailer cooperation to mitigate the negative
impacts of product expiration.
II. Variations in the Demand Mean
Customer demand is often subject to prediction errors and market fluctuations, making
variations in this criterion common in real-world scenarios. As demonstrated in Section 3, this
400

350
The manufacturer profit (million $)

300

250

200

150

100

50

0
2 4 6 8 10 12 14

RTC

Supply chain without integration Integrated Supply chain

 17

40

35

30
The retailer profit (million $)

25

20

15

10

0
2 4 6 8 10 12 14

RTC

Non integrated Supply chain Integrated Supply chain

Figure 2: The relationship between the profit function of both the retailer and the manufacturer
and the duration of the replenishment cycle.
150

100
The manufacturer profit (million $)

50

0
1 2 3 4 5

-50

-100

-150

The percentage of change in 𝜇

Integrated supply chain Non integrated Supply chain

 18

150

100
The retailer profit (million $)

50

0
1 2 3 4 5

-50

-100

-150

The percentage of change in 𝜇

Integrated supply chain Non integrated Supply chain

Figure 3: Illustrates how the profit function of both the retailer and the manufacturer is
associated with variations in the demand mean.
150

100
The manufacturer profit (million $)

50

0
1 2 3 4 5 6

-50

-100

-150

The percentage of change in 𝜎

Integrated supply chain Non integrated Supply chain

 19

150

100
The retailer profit (million $)

50

0
1 2 3 4 5

-50

-100

-150

The percentage of change in 𝜎

Integrated supply chain Non integrated Supply chain

Figure 4: The profitability of both the retailer and the manufacturer concerning variations in the
standard deviation of demand.
factor doesn't impact the service level and related product repurchase agreement criteria (ρc and
rp). However, increasing the demand means leads to higher order quantities according to
Equation (1), resulting in increased profits for both the retailer and manufacturer, as shown in
Figure 3.
Furthermore, the trends in Figure 3 indicate that a higher demand mean creates more
opportunities for manufacturer-retailer cooperation. However, the advantages of collaboration for
the retailer remain relatively consistent across different demand mean values. This dynamic
could empower the retailer to negotiate more effectively and seek concessions within the product
repurchase agreement.
III. Variations in the Standard Deviation of Demand
The standard deviation frequently indicates the level of confidence in uncertain criteria. A
smaller standard deviation implies more accurate criteria value estimates.
Hence, reducing the standard deviation or increasing our understanding of uncertain factors is
anticipated to improve the retailer's profitability. To investigate this pattern, Figure 4 displays the
profits of both the manufacturer and retailer in relation to the standard deviation of demand.
There are several key takeaways from the patterns observed in Figure 4. Firstly, the
manufacturer's profit in the non-integrated scenario shows only minor fluctuations in response to
changes in demand standard deviation. This implies that when demand variability is high, the
retailer has greater incentives to collaborate with the manufacturer. Secondly, the standard
deviation has contrasting impacts on the profitability of each supply chain member, as
 20

anticipated. Thirdly, higher demand standard deviation promotes greater collaboration between
the manufacturer and retailer. Lastly, with increasing demand standard deviation, members tend
to lean more towards a cooperative strategy due to rising costs.

IV. Variations in Recycling Capacity

As expected, the regeneration capacity has the most significant effect on profits in the
integrated model. Table 3 displays the outcomes of the collaborative approach for different levels
of affordable regeneration capacity.

Table 3: Shows the outcomes of the models for various adjustments in recycling capacity.
Changes Variable
F x ( rs ) c
π ($)
dc
c
π ($)
m
Rp ($/ton) pc
-85% 0.72 32,600,800 155,300,200 18,600.30 0.44
-65% 0.72 32,900,800 157,290,170 6400.70 0.89
-45% 0.89 35,500,900 168,700,350 8600.80 1
-25% 0.89 35,500,900 168,700,350 8600.80 1
-5% 0.89 35,500,900 168,700,350 8600.80 1
0% 0.89 35,500,900 168,700,350 8600.80 1
+5% 0.89 35,500,900 168,700,350 8600.80 1
+25% 0.89 35,500,900 168,700,350 8600.80 1

The outcomes in Table 3 indicate that as capacity diminishes by more than 45%, confidence
in the system declines. Furthermore, further reductions in capacity lead to a decrease in the
percentage of products subject to reprocessing based on the product repurchase agreement. This
decrease occurs because the system becomes incapable of processing expired products
effectively.
It is noteworthy that a reduction in capacity by 45% does not impact supply chain profit,
implying that the current capacity level is not limiting. However, in line with According to
Lemma 1, the cooperative strategy demonstrates its effectiveness for every recoverable unit of
expired products in the case study. Consequently, a 45% reduction in capacity means that the
supply chain cannot realize the maximum potential value from reprocessing expired products.

5. Discussion
5.1 Implications for Administration
This paper explores a collaborative approach in the context of managing sustainable supply
chains and promoting a sustainable economy. The strategy aligns with sustainable supply chain
concepts by aiming to derive value from expired products typically treated as waste. In this
approach, expired items are gathered from retailers and then repurchased by the manufacturer at
a fair cost. They are subsequently transformed into alternative products that preserve certain
characteristics of the original ones.
The effective execution of this approach requires both technological capabilities and
managerial efforts. This study assesses its efficiency by examining the expenses and advantages
associated with adopting technology, along with the integration and coordination efforts among
 21

supply chain participants as part of management initiatives. The research provides several
valuable managerial observations:
I. Sustainable Economy Prominence
The first insight underscores the growing importance of a sustainable economy, surpassing
other ideologies like conventional supply chain management, environmentally friendly supply
chain, and even eco-friendly supply chain practices. By replacing waste with value, enabled by
technological advancements, this strategy not only benefits the environment while also boosting
the profitability of the supply chain. It achieves this through two main effects: alleviating retailer
concerns about unsold and expired products, leading to increased orders and higher sales
revenue, and reprocessing expired products to create value instead of waste. Efficient and
synchronized supply chain management involving reviving technology outperforms individual
approaches and coordination without technology.
II. Sensitivity Analysis Insights
 Lower Shelf Life
The cooperative strategy demonstrates greater effectiveness when products have a shorter
shelf life before expiration. Managers should explore options to prolong product shelf life or
employ this strategy to address the challenges associated with high expiration-related expenses.
 High Demand Mean
Higher demand means providing more opportunities for the manufacturer in the cooperative
strategy. Retailers in such cases can leverage long-term competitive advantages and negotiate for
greater profits.
 Demand Standard Deviation
Greater demand standard deviation negatively affects member profits. Stabilizing the market
emerges as a strategy to enhance supply chain profitability, particularly in volatile markets where
the difference between integrated and non-integrated approaches is accentuated. Cooperation and
strategic alliances, as proposed in this study, become more essential in such scenarios.
 Financial Support
The proposed strategy significantly impacts supply chain profitability and customer service
levels. However, its full potential is realized when adequate financial resources support reviving
process capacity development. Therefore, financial institutions and government support, such as
loans for sustainable supply chains, are essential, especially when service levels are crucial.
These insights underscore the significance of sustainable supply chain strategies and
highlight opportunities for enhancing supply chain performance and sustainability.

6. Research Implications
Regarding research, this study establishes a framework for assessing a new strategy and
validating its effectiveness. The provided models can aid decision-makers responsible for
managing expired products in evaluating the advantages and disadvantages of investing in
innovative waste-reprocessing technologies. Furthermore, the study's findings have significant
implications for practical applications and society as a whole. For practitioners, the results offer
 22

valuable insights. The study highlights that collaboration between manufacturers and retailers,
coupled with technological advancements, yields greater benefits than mere integration. It also
pinpoints specific conditions, like products with a limited shelf life and varying demand patterns,
in situations where strategy is more effective and advantageous. Furthermore, the study aligns
with the principles of the sustainable economy, contributing to society by promoting waste
reduction and sustainable resource management.

7. Conclusion
This research addresses the challenge posed by the expiration and deterioration of food and
pharmaceutical products, which result in substantial supply chain costs. It explores a strategy to
mitigate these costs by reviving expired products and utilizing them in other applications,
preserving their essential attributes. The study demonstrates how this approach, combined with a
product repurchase agreement, can enhance the effectiveness of a sustainable supply chain
involving both a retailer and a manufacturer's performance.
The study formulates profit functions for both the retailer and manufacturer within integrated
and non-integrated supply chain setups. It presents a product repurchase agreement aimed at
aligning members and steering them toward integration by fine-tuning contract criteria. The
research derives optimal solutions from the provided models and investigates the influence of
factors like revival capacity on supply chain performance.
The real-world implementation of the proposed model illustrates its effectiveness in
improving the profitability and service levels of the supply chain and its individual components.
Moreover, the sensitivity analysis outcomes emphasize the influence of factors such as demand
mean, demand standard deviation, and product shelf life on member profitability and cooperative
strategy adoption.
The study contributes in several ways. It introduces a novel perspective to coordinated
contracts by emphasizing the repurchase of expired products over unsold ones, motivating
partnerships and transforming waste into valuable products. The research also integrates
inventory models, coordination contracts, and technology evaluations, providing decision-
makers with a comprehensive view for strategic decision-making. Lastly, it identifies areas for
future research, including variable replenishment cycle times, prices, and more complex supply
chains with multiple members.
However, certain limitations within the proposed models warrant further investigation to
enhance applicability These limitations are mainly associated with the assumptions that underlie
the research model, which may affect its suitability in certain contexts. Variables such as variable
replenishment cycle times or prices would require adjustments to the mathematical models for
each partner. In more complex supply chains involving more than two members, implementing,
and modeling the proposed strategy becomes more intricate due to differing member interactions
and motivations. Lastly, in a competitive setting, where each member of the supply chain seeks
to maximize profits and exert bargaining power, game-theoretic models based on competition
may be more suitable than the cooperative model discussed in this research.
Given the research findings, it is advisable to explore alternative unpredictability methods
like robust optimization for more reliable solutions in future research endeavors. Combining the
product repurchase agreement with other initiatives to extend product lifespans or applying the
strategy to multi-tiered supply chains involving deteriorating and expiring products are
promising avenues for future research.
 23

Appendix A. Expressing Q using RTC and RS as variables.

According to the definition of α, Equations (a1) and (a2) hold true.
pc ( x ≤Q ) =α (a1)

pc
( x−μ
σ . √ RTC
≤
σ . √ RTC )
. RTC Q−μ . RTC
=α (a2)

Given that the demand variable, denoted as x, is distributed according to a normal distribution,
and exhibits typical characteristics associated with random variables following a normal
X−μ . RTC
distribution, we introduce a new variable, z = . This newly defined variable, z,
σ . √ RTC
follows a standard normal distribution with a mean of 0 and a standard deviation of 1.
Consequently, in the context of the definitions of z and rs, the following relationships can be
derived:

(
pc z ≤
Q−μ . RTC
σ . √ RTC )
=α →
Q−μ . RTC
σ . √ RTC
=rs → Q=μ . RCT + RS .σ . √ RCT (a3)

Appendix B. Deriving E (X - Q)+ and E (Q - X)+

Given the probability density function representing demand, designated as fd(x), the anticipated
+¿¿
shortfall value for each individual time period, denoted as E( X−Q) , is calculated as the
integral from Q to +∞ of (x - Q) * fd(x) * dx.
Additionally, assuming the demand follows a normal distribution with criteria N (μRTC,
σ . √ RTC and using the equation (1) to define Q, after some mathematical transformations, the
following relationships hold true:
+∞
1
+¿= ∫ ( x−Q ) ..exp ¿ ¿¿
=
√2 π . σ . √ RTC
E( X−Q) RS

+∞
(x−( μ . RTC +rs . σ . √ RTC ) ) 1
∫ σ . √ RTC . . . exp ¿ ¿
RS σ . √ RTC √ 2 π . σ . √ PCR
x−μ . RTC
Subsequently, by introducing a new variable z defined as z = ( ), it becomes evident
σ . √ RTC
that dz = dx / (σ . √ RTC ). Furthermore, the lower boundary of the integral in Equation (b1),
Q−μ . RTC ( μ . RTC +rs . σ . √ RTC ) ¿ ¿
denoted as Q, can be expressed as = = rs with
σ . √ RTC σ . √ RTC
respect to the variable z, the upper boundary of the integral remains +∞. Therefore, by
substituting the variable z within the integral expressions, Equation (b1), Equation (b2) is
derived.

(−z2 ) .dz ¿
+∞ 2
1
+¿=σ . √ RTC . ∫ ( z−rs ) . .exp
√2 π (b2)
E ( X −Q ) RS

Thus, following the definition of G(rs) outlined in 3.1, Equation (b2) is identical to Equation (2).
Additionally, the anticipated quantity of expired items that remain unutilized at the end of each
 24

= ∫ ( Q−x ) . * fd(x) * dx. Once more, this expected

+¿¿
period amounts to calculated as E ( X −Q )
+∞
value can be reorganized to match Equation (b2).
Q Q
( ) .dx =∫ . ( μ .RTC +rs .σ . √ RTC )− x¿
2
−1 x−μ .RTC
1
+¿ ∫ ( Q− x ) . 2 σ. √RTC

√ 2 π .σ √ RTC
( ( ))
e
Q
( ) . dx=∫ (
2
( X−Q ) +∞ +∞
1
−1 x− μ . RTC
2 σ . √ RTC x −μ . RTC 1
−1 x− μ
2 σ.√
E . rs− .
σ . √ RTC √2 π
e
+∞ σ . √ RTC √2 π
e

(b3)
x−μ . RTC
In Equation (b3), you can replace the variable z with and the differential dz with
σ . √ RTC
dx
. By making these substitutions, the following relationships will hold true:
σ . √ RTC
rs

+¿=−σ . √ RTC . ∫ ( z−rs ) fz ( z ) dz=−σ . √ RTC ¿¿ ¿

(b4)
E ( X −Q ) −∞

As per the definition of the probability density function for any random variable, encompassing
the standard normal distribution function, the integral over the entire range from negative infinity
to positive infinity of fz(z)dz equals 1. Furthermore, the integral over the entire range from
negative infinity to positive infinity of z * fz(z)dz embodies the significance of the standard
Normal distribution function, equating to zero. Hence, taking into account the representation of
G(rs), the equality between Equation (b4) and Equation (3) is further confirmed.
Appendix C
The total sales during a specific timeframe depend on the actual demand. If the demand, denoted
as x, is lower than a certain threshold Q, then when the demand reaches or falls below Q units,
all x units will be successfully sold. However, in cases where the demand surpasses the threshold
of Q, the warehouse's available inventory can only satisfy Q units of demand, and any additional
demand beyond this quantity will be recorded as unmet or lost sales. As a result, the sales
amount can be estimated by considering the following relationships.
Q ∞ Q
S= ∫ x . fx ( x ) . dx +Q∫ fx ( x ) . dx=¿ ∫ x . fx ( x ) .dx +Q ¿ ¿ ¿ (c1)
−∞ Q −∞

Appendix D: The demonstration of the concave nature of π dc

dc ( rs )

The study acquires the expressions for the initial and secondary derivatives of π dc
dc ( rs ) concerning
rs in equations (d1) and (d2).
dc
∂ π dc ( rs ) −σ . √ RTC
= ¿ (d1)
∂ rs RTC
dc
∂ π dc ( rs ) σ . √ RTC
2
= ( 2 pc−℘+dc ) . fx ( rs ) (d2)
∂ rs RTC
 25

Considering Equation d2 and recognizing that the retail price exceeds the wholesale price,
denoted as pc > wp, it follows that the second derivative of π dc
dc ( rs ) in relation to rs is negative.
dc
This establishes the concavity of π dc ( rs ) .

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