Advanced Search
MyIDEAS: Login

Price promotions, operations cost, and profit in a two-stage supply chain

Contents:

Author Info

  • Su, Yiqiang
  • Geunes, Joseph
Registered author(s):

    Abstract

    The phenomenon in which demand variability increases as one moves upstream in the supply chain has been often observed in practice. This so-called “bullwhip effect” often increases upstream operations costs, including inventory holding and transportation costs. Price variations are considered to be one of the primary causes of the bullwhip effect, and thus everyday low price (EDLP) strategies are commonly recommended to counter the negative impacts of the bullwhip effect. However, trade promotions continue to play an important role in the U.S. supermarket industry as well as other industries. This paper investigates this apparent inconsistency between the literature and practice by employing a deterministic, two-stage supply chain model composed of a single supplier and a single retailer. We demonstrate that even though the use of trade promotions can indeed increase a retailer's and supplier's operations costs, these costs may be more than offset by increased revenues, even in the absence of explicit coordination. That is, if the supplier judiciously applies a trade promotion strategy and the retailer passes some of this discount to its customers, then under certain conditions, the resulting supply chain profit can exceed that under an EDLP strategy. We provide a broad set of computational results that validate this conclusion and discuss the resulting managerial insights.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0305048312000217
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 40 (2012)
    Issue (Month): 6 ()
    Pages: 891-905

    as in new window
    Handle: RePEc:eee:jomega:v:40:y:2012:i:6:p:891-905

    Contact details of provider:
    Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description

    Order Information:
    Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
    Web: https://shop.elsevier.com/order?id=375&ref=375_01_ooc_1&version=01

    Related research

    Keywords: Inventory control; Operations management;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:40:y:2012:i:6:p:891-905. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.