An examination of the impact of coordinating supply chain policies and price markdowns on short lifecycle product retail performance

The study evaluates the implications of coordinating price markdown policies with supply chain policies of inventory replenishment, and transportation expediting on retail performance of a short lifecycle product. The product replenishment policies consider the freeze quantities and times for order placement along with the replenishment mode (typically water or air) in situations with demand uncertainty. The replenishment policy highlights the situation where the retailer commits for supplier capacity and material resources in case additional manufacturing and supply of product is needed due to high demand. Simulation model development and the related parameter assumptions are based on extensive discussions with executives from a leading US-based firm involved in retail operations for short lifecycle products. The situation in retail environments of products with short lifecycles is compared with a base case of low demand variability. Based on the current practices of the US retailer, we investigate the scenario in which only price markdown policy is used and the scenario in which the markdown policy is coordinated with the operational replenishment and expediting policies. Monte-Carlo simulation approach is used and statistical analysis is conducted to test the research hypotheses. Our results suggest that while in low demand variability situation relying solely on price markdowns results in better overall retail performance; in the presence of high demand variability the retail performance achieved by coordinating price markdowns with supply chain policies is higher.