Pricing strategy in an arborescent supply chain system

Authors:
P. C. Yang;H. M. Wee;S. L. Chung
Affiliations:
Industrial Engineering and Management Department, St. John's University, Tamsui, Taipei;Industrial Engineering Department, Chung Yuan Christian University, Chungli, Taiwan;Information Management Department, St. John's University, Tamsui, Taipei
Venue:
SEAL'06 Proceedings of the 6th international conference on Simulated Evolution And Learning
Year:
2006

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Abstract

This study develops an optimal pricing and replenishment policy in an arborescent (tree-like) supply chain system. Since it benefits the up-streams more than the down-streams when a producer, a distributor and multiple retailers are integrated, a pricing strategy with price reduction is derived to entice the down-streams to accept the incentive system with minimum total cost. Negotiation factors are incorporated to balance the cost saving between the players. A numerical example solved by GA (genetic algorithm) is provided to illustrate the theory and the problem-solving tool. The result shows that the percentage of total cost reduction incurred from the integration is quite impressive.