The Impact of Coordination on Stocking and Promotional Markdown Policies for a Supply Chain

Results of a study of the coordination effect in stocking and promotional markdown policies for a supply chain consisting of a retailer and a discount outlet (DCO) are reported here. We assume that the products are sold in two consecutive periods: Normal Sales Period (NSP) and subsequent Promotional Sales Period (PSP). When managers in the two periods coordinate, they share information on the demand forecast and jointly decide the stocking quantity, markdown time schedule, and markdown price to maximize mutual profit. In the absence of coordination, decisions are decentralized to optimize the individual party's objective function. Optimal coordination policy for the retailer/DCO problem setting is analyzed, and the coordination policy is compared with the uncoordinated policy to explore factors that make coordination an effective approach.