Coordination on stocking and progressive pricing policies for a supply chain

Results of a study of the coordination effect in stocking and progressive pricing policies for a supply chain consisting of a manufacturer and a discount outlet selling a short life cycle good are reported here. We assume that the product is sold in two consecutive periods: the normal sale period (NSP) and the subsequent leftovers markdown sale period (MSP). Two systems, the centralized and decentralized systems, are analyzed. In the centralized system, decisions are fully integrated for the joint profits. In the decentralized system, decisions are decentralized to optimize the individual party's objective function. Here, various system distortions cause the decentralized system to stock less and price lower (higher) in NSP (MSP) than in the centralized supply chain. System profits are thus lower than those in the centralized system. A numerical experiment is provided to compare the centralized model with the decentralized model to explore factors that make coordination an effective approach.