An extension to single-manufacturer, multi-retailer consignment policy for retailers' generalized demand distributions

Abstract

Consignment Policy (CP) is a new approach for maintaining inventories in supply chain management. This strategic approach had been considered in previous profit maximizing models by taking into account only the inventory of unsold units of a product. However, the selling period inventory has not been considered in developing the model and hence it limits the optimal profit calculation. To make the model more realistic, this study extends prior single-manufacturer multi-retailer models with generalized demand distribution by considering this selling period inventory along with the other factors considered earlier. It has been compared with an uncoordinated Traditional Policy (TP) model developed in the similar approach. Two numerical examples with normal and exponential demand distributions are set to illustrate effects of this model. Results of both examples show that all parties can earn more profit under CP than that in TP. New solution techniques and algorithm of the extended model are developed, and the significance of the included factor is highlighted by comparative studies on the results of numerical problems. Retail price markdown is analyzed for the managerial implications.