Coordination under price protection, mid/end life returns, and quantity discount for a three-level supply chain

The coordination of a three-level supply chain consisting of a supplier, a retailer, and a discount outlet (DCO) is studied here. We assume that the product is sold in two consecutive periods: a Normal Sales Period (NSP) and a subsequent Clearance Salvage Period (CSP). A benchmark case is studied initially in which the supply chain is coordinated by a single agent. Thus, the supplier, the retailer, and the discount outlet design a common system that allows centralized decision making about stocking quantities, markdown time schedules, and policies on disposing of leftovers to deliver the greatest possible expected supply chain profit. Next, we consider a decentralized supply chain. Here, decisions are made without coordination. The objective is to maximize an individual party's expected profits. The focus of the study is on the following questions: what factors make the coordination an effective approach for the supply chain? How do we coordinate the supply chain so as to maximize the supply chain joint expected profit? These and other related study issues are explored in this paper.