Selective discount for supplier–buyer coordination using common replenishment epochs

A supplier may reduce its order costs by providing an incentive in the form of price discounts to buyers to restrict their replenishment intervals to multiples of a common replenishment epoch (CRE). This coordination mechanism was studied by Viswanathan and Piplani who suggested that the supplier offer a discount that is the maximum of the discount required by all buyers. We generalize their model to allow for a selective discount policy that, if beneficial, excludes some buyers to minimize the supplier's total cost. Using a computational study, we observe that offering discounts to buyers selectively, if necessary, by segmenting them and offering multiple CRE, reduces the supplier's cost in many scenarios.