Optimal Pricing and Capacity Strategies for Seasonal Products in a Supply Chain
Date Issued
2011
Date
2011
Author(s)
Lu, Ming-Lun
Abstract
A product whose demand takes place only in a specific period of a year is called “seasonal product.” Due to demand uncertainty and the short life, a retailer faces a problem of determining the timing and the quantity of orders. In order to collect more information, retailers prefer to place orders closed to the peak season so that they can avoid the holding cost and therefore minimize demand forecast error. In this case, a manufacturer cannot produce enough products in the peak season due to capacity constraint. However, if the manufacturer prepares production in advance, stocking inventory will become a burden. Therefore, the manufacturer will attempt to circumvent this problem with a more efficient method.
In this research, the manufacturer provides two ways to improve this problem; one is to design a discount contract, and the other is to expand capacity in the peak season. Under a discount contract, the manufacturer will offer a sale discount for every unit of the products sold in the off-peak season to induce retailers to make an early procurement. Capacity expansion in the peak season is a direct method to satisfy demand and also create economies of scale for the manufacturer. Here, we use the concept of Stackelberg game to construct our model under which a manufacturer faces a retailer to determine the optimal production strategy of a seasonal product by comparing the above two methods.
Subjects
seasonal products
Stackelberg game
discount contract
capacity expansion
Type
thesis
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