Impact of price sensitive and stock dependent random demand on supply chain coordination

Abstract

In this paper, a coordination model is developed for a single manufacturer-single retailer distribution supply chain dealing with short life-cycle products, operating under price-sensitive and stock-dependent random demand. Here, the demand is modeled in additive fashion that captures the three features, namely, price-sensitivity, initial stock dependency and uncertainty of demand. A numerical study is carried out to illustrate the model and sensitivity analysis is performed to analyze the impact of price-sensitivity, stock-dependency, and demand uncertainty on the supply chain performance. It is found that under the same price-sensitivity, at higher levels of stock dependency, as the demand variability is increased, supply chain performance is decreased.

Keywords:

• supply chain
• coordination
• contracts
• return policies
• price-sensitive demand
• stock dependent demand