Managerial flexibility strategies under supply and demand risks: quantity postponement vs. price postponement

Abstract

The stochastic demand and the uncertain supply/yield are common marketing operation risks. To solve these risks, firms usually apply quantity postponement strategy or price postponement strategy to improve supply chain performance. In this paper, we consider a firm’s two-stage decisions model where the firm needs to make the price decision and the quantity decision under both supply and demand risks. And the risks response depending on different postponement strategies is the key factor for the firm. When the firm adopts the quantity postponement strategy, the expected yield is equal to the market demand. Furthermore, the demand risk does not affect the firm’s pricing decision, and the supply risk forces the firm to push up the product’s sale price and to decrease order quantity. However, when the firm adopts the price postponement strategy, the expected yield is higher than market demand which indicates the firm may confront a dilemma of overproduction. Meanwhile, both demand risk and supply risk cause the decrease of order quantity. In terms of the ability of mitigating both supply and demand risks, the two postponement strategies show different performance. The quantity postponement strategy can mitigate the demand risk, but the firm can not mitigate the supply risk by adopting price postponement strategy.