Quantity discount coordination for supply chains with deteriorating inventory

Product functionality and physical structure are easily influenced by long storage times, which result in degradation, erosion, and deterioration. This study considers a two-echelon supply chain with one supplier and one retailer, in which products deteriorate over time and the retailer may encounter product shortages. This study contributes to current literature by developing a quantity discount-coordination mechanism that can efficiently determine an optimal long-term ordering policy, which should maximize the entire supply chain's benefits. The results demonstrate that coordinating quantity discounts can reduce demand uncertainty, which can decrease the number of orders placed by the retailer and effectively increase the supply chain's overall benefits. The retailer's benefits increase due to the significant decrease in ordering and purchasing costs. However, the increased sales volume from offering a discount may not offset related expenses, which may decrease the supplier's benefits. Therefore, the retailer must share its revenue with the supplier to enhance the latter's willingness to coordinate.