Coordinated stocking, clearance sales, and return policies for a supply chain

The results of a study of inter-organizational coordination effect in inventory control, return, and clearance sales policies for a distribution channel consisting of a supplier, a retailer, and a Discount Sales Outlet (DSO) are reported here. We first study the retailer-DSO coordination issues. The products are initially sold in a retail outlet. After the selling season, the leftovers are moved to a DSO for a permanent clearance sale. When the retailer and the DSO coordinate, they share information on the demand forecast and jointly decide the stocking, markdown sales, and return policies to maximize mutual profit. In the absence of coordination, the demand information is not shared by the two parties, and the decisions are decentralized to optimize the individual party's objective function. For the supplier-retailer-DSO cooperation issue, two models are considered: namely, the Joint Optimal Model (JOM) and the Individual Optimal Model (IOM), respectively. In the IOM, the stocking, markdown sales, and return policies are individually designed by the retailer-DSO, while the supplier independently sets the terms of the return policy. We compare this approach with the JOM, in which the supplier-retailer-DSO jointly designs a mutually beneficial plan so as to maximize the supply chain joint profit. Optimal coordination policies are analyzed, and the factors that make coordination an effective approach are studied. (C) 2001 Elsevier Science B.V. All rights reserved.