Quantity discount-based inventory coordination: effectiveness and critical environmental factors

It is understood that quantity discounts provide a practical foundation for coordinating inventory decisions in supply chains. The primary objective of this research is to test, under a variety of environmental conditions, the effectiveness of quantity discounts as an inventory coordination mechanism between a buyer and a supplier. A comprehensive simulation experiment with ANOVA has been designed to investigate the impacts of (1) choice of quantity discount-based inventory coordination policies, (2) magnitude of demand variation, (3) buyer's and supplier's relative inventory cost structure, and (4) buyer's economic time-between-orders on the effectiveness of supply chain inventory coordination. The analytical results confirm that the quantity discount policies have managerial properties as a mediator for inventory coordination. The results also show that the performance of quantity discount-based inventory coordination policies is influenced significantly by environmental factors, such as the magnitude of demand variation, the buyer's and the supplier's inventory cost structure, and the buyer's economic time-between-orders.