Supply chain strategies based on recourse model for very short life cycle products

Abstract

Firms that sell very short life cycle products often receive quantity discounts from their suppliers and transporters for placing larger orders. Practitioners and researchers have begun to recognize the need to decide the end of the season markdowns by studying the sales pattern. The use of these options can affect supply chain mismatch risks and costs. In this paper, we study the impact of quantity discounts and transportation cost structures on procurement, shipment and clearance pricing decisions through a stochastic programming with recourse formulation. We propose a solution procedure that efficiently solves this stochastic non-linear problem. Our computational experiments suggest that it is not always necessary to select the most complex action plan. Under some business environments, the conventional strategy of placing and transporting a single large order is a better option. We then identify situations where options such as markdowns and the use of quick response suppliers could be useful.