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Channel coordination with price discount mechanism under price‐sensitive market demand
Author(s) -
Sarkar Sumon,
Tiwari Sunil,
Wee HuiMing,
Giri B.C.
Publication year - 2020
Publication title -
international transactions in operational research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.032
H-Index - 52
eISSN - 1475-3995
pISSN - 0969-6016
DOI - 10.1111/itor.12678
Subject(s) - vendor , profitability index , supply chain , order (exchange) , product (mathematics) , microeconomics , quality (philosophy) , channel coordination , sensitivity (control systems) , channel (broadcasting) , supply and demand , computer science , economic order quantity , economics , mathematical optimization , supply chain management , business , mathematics , marketing , finance , philosophy , geometry , epistemology , electronic engineering , engineering , computer network
This paper considers a two‐echelon supply chain with single vendor single buyer for trading a single product. The buyer's demand has been assumed to be price‐sensitive. We have assumed three‐level inspection at the vendor's end in order to maintain good quality of the items delivered to the buyer. We have developed models for both decentralized and centralized scenarios and have determined the optimal solution using the basic concepts of analytic geometry and algebra. In addition, we have proposed a price discount mechanism, where the vendor has provided discounts on the purchase cost to the buyer against the buyer's (increased) order quantity. Finally, in order to illustrate and validate the proposed model, a numerical example and sensitivity analysis is carried out, which has provided some important managerial implications. It has been observed from the numerical study that the proposed price discount policy coordinates the supply chain and has improved the profitability of the supply chain and its members.