Research into stimulation mechanism in supply chain under random demand

Price discount is frequently used to coordinate the benefits between vendor and buyer in supply chain. This paper studies the price discount strategy under random demand. Owing to the random variation of market demands, distributors may keep some residual goods after marketing season is over. Manufacturers ought to partake a part of loss of inventory backlog so as to balance the benefits between manufacturer and distributor. Based on this, the strategy which manufacturers give price discount to residual goods is proposed in this paper. Then the stimulation mechanism of the strategy is elucidated, the models of optimal price discount are given, and the algorithms of solving model are presented. Finally the numerical method is utilized to illustrate the profit improvements of manufacturer and distributor caused by this kind of price discount strategy, and the results indicate that the bigger demand fluctuation, the more benefits obtained by both parties and the whole supply chain from the strategy.