Ordering Strategies for Short Product Life Cycle Made-to-Stock Products

Abstract

To take advantage of economies of scale, vendors and transporters often use quantity discounts to influence the firms to order in larger quantities. Also, as the firms use delivery windows to procure and transport short life cycle products, it becomes important to simultaneously decide the best possible procurement and transportation plan over the product life cycle. Similarly, there is growing recognition amongst both practitioners and researchers to decide the end of the season markdowns by studying the sales pattern. In this paper, we propose a stochastic programming with recourse formulation to study this problem with the objective of maximizing the retailer's expected product life cycle profit keeping the initial business promised, subsequent lifecycle replenishment orders, transportation batch sizes and markdowns as recourse variables. We propose a solution procedure that efficiently solves this stochastic nonlinear problem. Our computational experiments suggest that it is always not 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 identity situations where decisions such as markdowns and use of quick response suppliers can be useful.

Keywords: Economies of Scale, Inventory Control, JlT, Made-To-Stock (MTS), Ordering Strategies, Retail Supply Chain, Short Product Life Cycle, Supply Chain Management