Temporary Price Discounts For Supply Chain Contract

Suppliers in supply chain provide temporary price discounts in order to increase cash flow and market share or to reduce product inventory. Coming up with this situation, retailers have to decide how to adjust order quantity to achieving their maximum benefits. Increasing order quantity with temporary price discounts can reduce the purchase price and order fees on one hand, but on the other hand, more orders will increase retailers' inventory investment and other inventory-related costs. On top of this, how to hammer at cost saving is the most serious problems faced by retailers. Similarly, suppliers who provide discounts also have certain restriction to keep their profits. Then how to determine a reasonable discount level is the important decision-making to suppliers. This paper centers on the above issues, and makes a research on temporary price discounts from retailers and suppliers point of view separately.Firstly, research background, status and significance on discount pricing are outlined and then supply chain inventory management and discounts pricing in general model are summarized. Secondly, a model of two-level inventory system comprised of a supplier and a retailer under temporary price discounts is presented, in which the factor of time value of money and short supply are taken into account. Then it analyzes two possibilities in which retailer's inventory is zero and not zero in order to help retailers make strategy by using non-linear programming. Finally, a numerical example is included to illustrate the effectiveness of the model.Research shows that, the model can be applied to retailers to make optimal decision with different assumption and to suppliers to determine the level of discount to ensure their profits, it also conduce to approximate solution computed by Excel software, which can provides practical application to the enterprise in supply chain.