Optimization of production inventory with pricing and promotion effort for a single-vendor multi-buyer system of perishable products

Zhixiang Chen

International Journal of Production Economics, 2018, vol. 203, issue C, 333-349

Abstract: In this study, we consider a new decision issue for perishable products in production inventory with pricing and promotion for a single-vendor multi-buyer system comprising one manufacturer and multiple retailers. First, a centralized decision model with a vendor managed inventory (VMI) control system under a just-in-time shipment policy is developed. In order to understand the advantages and disadvantages of VMI, a benchmarking decision model is then developed called the decentralized model with completely independent replenishment (CIRP). Numerical examples and sensitivity analysis are conducted to demonstrate the applicability of the proposed models and their managerial implications. In the decision models, we employ a new concept for constructing the demand function, where we propose a brand competition ratio and two promotion cost strategies: the promotion cost shared by the manufacturer with retailers and that borne solely by the retailers. The results show that although VMI has a systematic advantage compared with CIRP in terms of profitability, the effects are dissimilar for the vendor and the buyer. Promotion cost sharing and increasing the wholesale price have different effects on decisions. Thus, promotion cost sharing can lead to an increase in the profits for retailers and the vendor–buyer system but a reduction in the manufacturer's profit, whereas increasing the wholesale price can increase the manufacturer's profit but reduce the profits for retailers and the vendor–buyer system. Only the strategies that reduce the transportation cost and increase the competitive abilities of retailers are win–win strategies for both the vendor and the buyer.

Keywords: Perishable product; Pricing; Production inventory; Promotion effort; Single-vendor multi-buyer; Vendor managed inventory (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:203:y:2018:i:c:p:333-349

DOI: 10.1016/j.ijpe.2018.06.002

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