Responding to supplier temporary price discounts in a supply chain through ordering and pricing decisions

This paper considers a one-retailer and one-supplier supply chain and addresses the question of how a retailer should use its ordering and pricing decisions to respond to its supplier’s temporary price discounts. The paper considers a hybrid environment -- somewhere between deterministic and stochastic modelling approaches -- that is, the retailer does not know when the next promotion from its supplier will occur but, once the promotion is announced, all its details are deterministic and often there is some time remaining before the promotion actually starts. We include in the objective function penalties on deviations from the original plan and explore the properties of the retailer’s ordering and pricing decisions under fixed and flexible set-up scenarios. We show that, when the set-up epochs are fixed, the retailer’s order quantities are monotonic and non-decreasing in situations where retail prices can be either fixed or flexible. When the set-up epochs are flexible, the ordering cycle is identical. Finally, we use some numerical examples to illustrate the proposed approach.