A Model Reflecting the Impact of Product Substitution in Dual- channel Supply Chain Inventory Policy

This paper proposes a model to study the impact of product substitution in dual channel supply chain behavior. Two important variables, namely price and order quantity are used to coordinate offline and online channels under this structure. A substitute- product demand function is added to well-known online and offline demand functions. The interplay amongst these three functions is then incorporated to EOQ model to assess and evaluate the financial performance. The result indicates that there is a positive relationship between substitution level and offline channel profit. Contrarily, there is a negative relationship between substitution level and online channel profit. In addition, it is also indicated a threshold value of substitution level's significance.