Optimal Quantity Discount Design with Limited Information Sharing

ABSTRACT In this article we address the optimal quantity discount design problem of a supplier in a two‐stage supply chain where the supplier and the buyer share annual demand information only. The supply chain faces a constant deterministic demand that is not price sensitive and operates with fixed...

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Bibliographic Details
Published in:Decision sciences 2008-11, Vol.39 (4), p.791-819
Main Authors: Karabati, Selçuk, Kouvelis, Panos
Format: Article
Language:English
Subjects:
and Supply Chain Coordination
Coordination
Decision making
Discounts
Information Sharing
Inventory control
Inventory Management
Knowledge management
Management
Order quantity
Studies
Suppliers
Supply chain management
Supply chains
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Summary:ABSTRACT In this article we address the optimal quantity discount design problem of a supplier in a two‐stage supply chain where the supplier and the buyer share annual demand information only. The supply chain faces a constant deterministic demand that is not price sensitive and operates with fixed setup costs in both stages. We show that the supplier can actually moderate a cost‐minimizing buyer to order in quantities different than the buyer's optimal order quantity in the traditional setting and develop a multi‐breakpoint quantity discount scheme that maximizes supplier's expected net savings. The proposed multi‐breakpoint discount scheme can be easily computed from the available information and, while also maximizing the supplier's net savings, is very effective in achieving high levels of supply chain coordination efficiency in the presence of limited information.
ISSN:0011-7315
1540-5915
DOI:10.1111/j.1540-5915.2008.00212.x