Impacts of Minimum Order Quantity on a Quick Response Supply Chain

Abstract

In this paper, we study the impacts of imposing a minimum order quantity (MOQ) on a two-echelon supply chain implementing quick response (QR) and consider the issue of coordination for such a system. By exploring the QR-MOQ supply chain system, we analytically prove that the retailer's expected profit (REP) is nonincreasing in the MOQ. We further find that the MOQ that maximizes the manufacturer's expected profit can significantly reduce the REP and the supply chain's efficiency. Understanding that the static nature of the preagreed MOQ hinders the information updating capability brought about by QR, which, in turn, decreases the supply chain's efficiency, we propose an innovative dynamic MOQ policy and derive the analytical conditions under which channel coordination with Pareto improvement is achieved.