Dynamic Procurement, Quantity Discounts, and Supply Chain Efficiency

Chapter
Part of the International Handbooks on Information Systems book series (INFOSYS)

Abstract

We study a model with a single supplier and a single buyer who interact multiple times before the buyer sells her product in the end-consumer market. We show that when the supplier uses a wholesale price contract, even under perfect foresight, the supplier, the buyer, and the end-consumers benefit from multiple trading opportunities versus a one-shot procurement agreement.

Keywords

Advance capacity procurement Incremental quantity discounts Strategic interactions Supply chain coordination 

References

  1. Allaz B, Vila JL (1993) Cournot competition, forward markets and efficiency. J Econ Theory 59(1):1–16CrossRefGoogle Scholar
  2. Anand K, Anupindi R, Bassok Y (2008) Strategic inventories in vertical contracts. Manage Sci 54(10):1792–1804CrossRefGoogle Scholar
  3. Benton WC, Park S (1996) A classification of literature on determining the lot size under quantity discounts. Eur J Oper Res 92(2):219–238CrossRefGoogle Scholar
  4. Burnetas A, Gilbert S (2001) Future capacity procurements under unknown demand and increasing costs. Manage Sci 47(7):979–992CrossRefGoogle Scholar
  5. Cachon GP (2004) The allocation of inventory risk in a supply chain: push, pull, and advance-purchase discount contracts. Manage Sci 50(2):222–238CrossRefGoogle Scholar
  6. Chen R, Roma P (2010) Group buying of competing retailers. Prod Oper Manage 20(2):181–197Google Scholar
  7. Chen F, Federgruen A, Zheng Y (2001) Coordination mechanism for a distribution system with one supplier and multiple retailers. Manage Sci 47(5):693–708CrossRefGoogle Scholar
  8. Crowther J (1964) Rationale for quantity discounts. Harv Bus Rev 42(2):121–127Google Scholar
  9. Cvsa V, Gilbert SM (2002) Strategic commitment versus postponement in a two-tier supply chain. Eur J Oper Res 141(3):526–543CrossRefGoogle Scholar
  10. Dada M, Srikanth KN (1987) Pricing policies for quantity discounts. Manage Sci 33(10):1247–1252CrossRefGoogle Scholar
  11. Dolan RJ (1987) Quantity discounts: managerial issues and research opportunities. Mark Sci 6(1):1–23CrossRefGoogle Scholar
  12. Dong L, Zhu K (2007) Two-wholesale-price contracts: push, pull, and advance purchase discount contracts. Manuf Serv Oper Manage 9(3):291–311CrossRefGoogle Scholar
  13. Donohue KL (2000) Efficient supply contracts for fashion goods with forecast updating and two production modes. Manage Sci 46(11):1397–1411CrossRefGoogle Scholar
  14. Elmaghraby W, Keskinocak P (2003) Dynamic pricing in the presence of inventory considerations: research overview, current practices, and future directions. Manage Sci 49(10):1287–1309CrossRefGoogle Scholar
  15. Erhun F (2007) Dynamic pricing in Cournot duopoly with two production periods. Working paper, Department of Management Science and Engineering, Stanford University, Stanford, CAGoogle Scholar
  16. Erhun F, Keskinocak P, Tayur S (2008) Dynamic procurement in a capacitated supply chain facing uncertain demand. IIE Trans 40(8):733–748CrossRefGoogle Scholar
  17. Ferguson ME (2003) When to commit in a serial supply chain with forecast updating. Nav Res Logist 50(8):917–936CrossRefGoogle Scholar
  18. Ferguson ME, DeCroix GA, Zipkin PH (2005) Commitment decisions with partial information updating. Nav Res Logist 52(8):780–795CrossRefGoogle Scholar
  19. Guo P, Niu B, Wang Y (2009) Two-wholesale-price contract in a three-tier supply chain. Working paper, Hong Kong Polytechnic University, Hung Hom, KowloonGoogle Scholar
  20. Gurnani H, Tang CS (1999) Note: optimal ordering decisions with uncertain cost and demand forecast updating. Manage Sci 45(10):1456–1462CrossRefGoogle Scholar
  21. Ingene CA, Parry ME (1995) Channel coordination when retailers compete. Mark Sci 14(4):360–377CrossRefGoogle Scholar
  22. Iyer AV, Bergen ME (1997) Quick response in manufacturer-retailer channels. Manage Sci 43(4):559–570CrossRefGoogle Scholar
  23. Jeuland AP, Shugan SM (1983) Managing channel profits. Mark Sci 2(3):239–272CrossRefGoogle Scholar
  24. Keskinocak P, Charnsirisakskul K, Griffin P (2003) Supply chain procurement with inventory and backordering options. Working paper, School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, GAGoogle Scholar
  25. Keskinocak P, Charnsirisakskul K, Griffin P (2008) Strategic inventory in capacitated supply chain procurement. Managerial Decis Econ 29(1):23–36CrossRefGoogle Scholar
  26. Li C, Scheller-Wolf A (2010) Push or pull? Auctioning supply contracts. Prod Oper Manage 20(2):198–213Google Scholar
  27. Monahan JP (1984) A quantity discount pricing model to increase vendor profits. Manage Sci 30(6):720–726CrossRefGoogle Scholar
  28. Munson CL, Rosenblatt MJ (1998) Theories and realities of quantity discounts: an exploratory study. Prod Oper Manage 7(4):352–369CrossRefGoogle Scholar
  29. Raju J, Zhang ZJ (2005) Channel coordination in presence of a dominant retailer. Mark Sci 24(2):254–262CrossRefGoogle Scholar
  30. Spencer BJ, Brander JA (1992) Pre-commitment and flexibility: applications to oligopoly theory. Eur Econ Rev 36(8):1601–1626CrossRefGoogle Scholar
  31. Taylor T (2006) Sale timing in a supply chain: when to sell to the retailer. Manuf Serv Oper Manage 8(1):23–42CrossRefGoogle Scholar
  32. Van Mieghem JA (2003) Capacity management, investment, and hedging: review and recent developments. Manuf Serv Oper Manage 5(4):269–302CrossRefGoogle Scholar
  33. Weng ZK (1995) Channel coordination and quantity discounts. Manage Sci 41(9):1509–1522CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  1. 1.Department of Management Science and EngineeringStanford UniversityStanfordUSA
  2. 2.School of Industrial and Systems EngineeringGeorgia Institute of TechnologyAtlantaUSA
  3. 3.Tepper School of BusinessCarnegie Mellon UniversityPittsburghUSA

Personalised recommendations