Quantity Discounts, Capacity Decisions, and Channel Structure Choices in Supply Chains

Jonathan Jackson Jr

This dissertation takes a two-pronged approach into exploring best practices to optimize supply chains through procurement and distribution. Specifically, I develop three models to help managers make better business decisions regarding their procurement policies when facing quantity discounts and their usage of different distribution channels when there are varying types and levels of retail competition. Chapters Two and Three develop solution techniques to the shared resource allocation problem in the presence of quantity discounts and with the opportunity to expand or reduce the capacity level. This type of multi-item inventory system has two common ordering structures. The first considers each item independently, and thus the firm must keep their capacity level such that they can handle a situation where all items are ordered simultaneously. The second ordering structure links the timing of orders for all items to avoid a situation where all items are ordered simultaneously. I develop models to determine efficient procurement policies when facing these two ordering structures in Chapters Two and Three, respectively In Chapter Four I develop a model to help manufacturers determine their equilibrium distribution policy. More specifically, whether they should sell their product directly through a manufacturer-owned retailer or online, or indirectly through an intermediary such as an independent retailer. Introducing asymmetries in product substitutability and brand equity as well as different forms of competition causes the equilibrium channel structure to vary widely. Depending on the levels of asymmetry and competition, there are multiple equilibrium channel structures, including a case where it is beneficial to utilize both, or dual channels. Outside of the modeling chapters, in Chapter Five I utilize two managerial surveys related to common practices of quantity discounts from both buyers' and sellers' perspectives. The benefits of these surveys are two-fold: first, it provides an up-to-date perspective into industry's usage of quantity discounts, and second, it identifies research gaps that can help unify the interests of researchers and practitioners. A major area for future exploration is the development of quantity discount training scenarios. The survey results indicated a lack of fundamental understanding of the basic guidelines associated with quantity discounts.

Quantity Discounts, Capacity Decisions, and Channel Structure Choices in Supply Chains

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