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IMPROVING THE FINANCIAL EFFICIENCY OF THE SUPPLY CHAIN AS A WHOLE BY USING PROGRESSIVE DISCOUNT PRICING AS COORDINATION MECHANISM

Weiping Liu1

Eastern Connecticut State University, U.S.A.

 

ABSTRACT

A new trend in today’s business world is that the traditional vertical single-firm mass production model has been gradually replaced by supply chain production model. The dilemma for the supply chain production model is that on the one hand, suppliers and buyers are separate legal entities and each of them has to look after its own interests first; on the other hand, to ensure the success of supply chain production, supply chain partners must cooperate with each other. To make the cooperation sustainable, the interests of supply chain partners must be synchronized by a coordination mechanism. This study proposes to use the progressive discount pricing as the coordination mechanism. The effectiveness of this mechanism is examined in three different settings. In all these settings, this mechanism can enlarge the total profit of the supply chain system and make all supply chain partners better off. Thus, the goal of improving the financial efficiency of the supply chain as a whole can be realized.