Decentralized and centralized supply chain decision-making of low salvage value products with price-postponement strategy

Abstract

The characteristics of products with very low salvage value include short life cycle, short storage life, easy to loss, almost zero salvage value even need disposal costs when over the sales cycle. These products require selling almost all of them in the selling season, in order to minimize the inventory cost. Price postponement may be an effective way to deal with demand uncertainty and make the producers be sold out. Based on one manufacturer and one retailer supply chain, this paper discusses the optimal retail prices, and the models of retailer profit function in distributed control system and supply chain profit function in centralized control system. Then the optimal order quantity is obtained. Our researches show that, lower wholesale prices will help to maximize the supply chain benefits under decentralized decision making.