Distribution channel coordination for goods with fixed lifetime

Abstract

The purpose of this thesis is to develop an optimal procurement policy of retailer and also examine a new type of distribution channel coordination between supplier and retailer. For retailer who deals with items with fixed lifetime such as fishcakes or milk, the dependency of sales volume on the amount of inventory displayed and the perishable nature of the product become important factors in the determination of procurement policy. Coordination among suppliers and retailers becomes one of very important strategic issues in modern manufacturing and distribution systems. Up to the present time, it has been customary for large-scale discount stores to return the goods to the suppliers which remain unsold by their expiry date. Recently, a new market practice appears in which, in return for some discount on the current selling price of the suppliers, the retailers are not permitted returning the unsold goods. Thus in this thesis the following two problems, the procurement problem and coordination problem, are studied under FIFO (chapter 2), LIFO (chapter 3) and Random issuing policy (chapter 4). For the procurement problem, we investigate an optimal procurement policy for the item with an inventory-level-dependent demand rate and fixed lifetime. For the system presented, a mathematical model corresponding to each issuing policy is developed along with its solution methodology. We examine the sensitivity of the decision variables to changes in the parameter values. The test results show that the optimal solution is very sensitive to the estimation errors of the parameters in the demand function. For the coordination problem, a new market practice is analyzed in which, in return for some discount on the current selling price of the suppliers, the retailers are not permitted returning the unsold goods. As a result, the retailers can lower the consumer price, which results in an increased product demand from the consumer. Consequently, both parties enjoy higher financ...