Research On Pricing Discount For Coordination Of Supply Chain Management Under Price-sensitive Demand

Due to economic globalization, proliferation of customer demand and technological progress, effective coordination plays an important role in the successful operation of supply chain. Today supply chain often consists of stages with different owners. Each stages of a supply chain may have conflict objectives, as a result, each stage tries to maximize its own profits, resulting in actions that often diminish total supply chain profits. Thus, to achieve effective coordination between each stages of supply chain is a current managerial and an important issue. This research studies how to develop discount pricing policies to achieve effective coordination in a supply chain with price sensitive demand. The main contents of this research are as following:(1) An inventory model is developed to find the replenishment schedule for an inventory system, in which items deteriorate at a constant rate and demand is price-sensitive when supplier gives quantity discounts. It is shown that when the supplier gives quantity discounts, the buyer's demand increases. Sensitivity analysis with the numerical example shows that order quantity and replenishment cycle are very sensitive to the deterioration rate, but the retailer's average profit per unit time is not. The retailer's unit selling price and average profit per unit time are very sensitive to the price-sensitive parameter.(2) We address the problem of how a supplier develop a discount pricing structure for deteriorating items with price-sensitive demand when the supplier and the buyer make their decisions independently. The problem is analyzed as a Stackelberg game in which the supplier acts as the leader by announcing its pricing policy to the buyer in advance and the buyer acts as the follower by determining his unit selling price and thus the sales volume per unit time is determined. It is shown that when the supplier gives quantity discounts, the supplier and the buyer's profit increases. Sensitivity analysis with numerical example shows that quantity discounts increase as the price-sensitive parameter increases and decrease as deterioration rate increases. We compare the profits achieved when the supplier and buyer work independentlyand that achieved when they work jointly. It is shown that quantity discounts are effective to achieve channel coordination.(3) We consider volume discounts and franchise fees as coordination mechanisms in a system consisting of a supplier and a buyer with demand that is price-sensitive. The problem is analyzed as a Stackelberg game in which the supplier acts as the leader by announcing its pricing policy to the buyer in advance and the buyer acts as the follower by determining his unit selling price and thus annual sales volume is determined. We compare the discounts that the supplier gives to the buyer when they work independently with that when they work jointly. It is shown that volume discounts are not sufficient to guarantee the system's profit maximization. By charging the buyer franchise fees to offset an amount equal to or more than his loss due to giving the buyer more discounts than his optimal volume discounts, the coordination and profit maximization of the supply chain can be achieved. We also compare the mechanism of employing volume discounts and franchise fees with that of employing quantity discounts and franchise fees to achieve channel coordination. When demand is price-sensitive, the channel profit achieved by employing volume discounts and franchise fees is larger than that achieved by quantity discounts and franchise fees, but the channel cycle inventory is smaller than that raised by employing quantity discounts and franchise fees. Numerical examples are provided.(4) We present an analysis of a supplier's volume discount decision for a group of independent and heterogeneous retailers. Each retailer faces a demand that is a decreasing function of its retail price. The problem is analyzed as a Stackelberg game whereby the supplier acts as the leader and buyers act as followers. Based on the analysis that a larger buyer prefers to a larger break point. A simulated annealing (SA)-based heuristic to solve the problem is developed. It is shown that a common volume discount schedule that is designed according to buyers' individual cost and demand structures and their rational economic behavior is able to signifcantly stimulate demand, and substantially increase profits for both the supplier and buyers. Furthermore, It is also shown that when demand is price sensitive, the profit that achieved by using volume discounts is larger than that achieved by using quantity discounts. Numerical examples are provided.