Analysis of quantity discounts for multi-period production planning for single supplier and retailer under uncertain demands

Global supply chain management has an important role for globalization of marketplaces and global production. The production and distribution planning for suppliers and retailers with different objectives should be coordinated to minimize the total costs. However, it is well-known that the equilibrium solution for decentralized decision making is inferior to the solution of centralized problem. This study focuses on analysis of quantity discounts for multi-period production planning for single supplier and single retailer under uncertain demands. A Stackelberg equilibrium is analytically derived between single supplier and single retailer where supplier is a leader and retailer is a follower. An optimal discount contract is derived through the optimal solution of the centralized problem.