Effectiveness of dynamic pricing strategy in presence of supply chain disruptions

Abstract

The severe impacts of disruptive events on real-world supply chains have attracted the researcher’s attention on supply chain disruptions in the last decade. In the related literature, several strategies aimed at reducing the impact of disruptions have developed and analyzed. However, there exists no study which analyzes the effectiveness of pricing strategies in presence of disruptions on real-world supply chains to the best of our knowledge. Within this scope, a dynamic pricing approach is developed to mitigate stock-out risks aroused from disruptions. The rationale behind the proposed approach is to channel customer demand from a scarce product to a substitute product. The proposed approach is implemented in a retail supply chain. The computational results confirm the effectiveness of the dynamic pricing policy in the presence of disruptions.

Keywords

• Supply chain disruptions
• Dynamic pricing
• Simulation

References

1. Melnyk S, Rodrigues A, Ragatz G. Using Simulation to Investigate Supply Chain Disruptions. In: Zsidisin G, Ritchie B, Editors: Supply Chain Risk. International Series in Operations Research & Management Science. 124, Springer US; p. 103-22, 2009.
2. Schmitt AJ, Sun SA, Snyder LV, Shen Z-JM. “Centralization versus decentralization: Risk pooling, risk diversification, and supply chain disruptions”. Omega, 52, 201-212, 2015.
3. Sawik T. “Selection of supply portfolio under disruption risks.” Omega, 39(2), 194-208, 2011.
4. Schmitt TG, Kumar S, Stecke KE, Glover FW, Ehlen MA. “Mitigating disruptions in a multi-echelon supply chain using adaptive ordering”. Omega, 68, 185-198, 2017.
5. Schmitt AJ, Singh M. “A quantitative analysis of disruption risk in a multi-echelon supply Chain”. International Journal of Production Economics, 139(1), 22-32, 2012.
6. Snyder LV, Atan Z, Peng P, Rong Y, Schmitt AJ, Sinsoysal B. “OR/MS models for supply chain disruptions: A review”. IIE Transactions, 48(2), 89-109, 2016.
7. Ivanov D, Dolgui A, Sokolov B, Ivanova M. “Literature review on disruption recovery in the supply chain”. International Journal of Production Research, 55(20), 6158-6174, 2017.
8. Hosseini S, Ivanov D, Dolgui A. “Review of quantitative methods for supply chain resilience analysis”. Transportation Research Part E: Logistics and Transportation Review, 125, 285-307, 2019.

9. Veverka M. “A DRAM shame”. Barron’s, October. 25, 115, 1999.
10. Tang CS. “Perspectives in supply chain risk management.” International Journal of Production Economics, 103(2), 451-488, 2006.
11. Zhu SX. “Dynamic replenishment, production, and pricing decisions, in the face of supply disruption and random price-sensitive demand”. International Journal of Production Economics, 146(2), 612-619, 2013.
12. Gong X, Chao X, Zheng S. “Dynamic pricing and inventory management with dual suppliers of different lead times and disruption risks”. Production and Operations Management, 23(12), 2058-2074, 2014.
13. Huang H, He Y, Li D. “Pricing and inventory decisions in the food supply chain with production disruption and controllable deterioration”. Journal of Cleaner Production, 180, 280-296, 2018.
14. Ghomi-Avili M, Naeini SGJ, Tavakkoli-Moghaddam R, Jabbarzadeh A. “A fuzzy pricing model for a green competitive closed-loop supply chain network design in the presence of disruptions”. Journal of Cleaner Production, 188, 425-442, 2018.
15. Huang Y, Wang Z. “Demand disruptions, pricing and production decisions in a closed-loop supply chain with technology licensing”. Journal of Cleaner Production, 191, 248-260, 2018.
16. Hosseini-Motlagh SM, Nouri-Harzvili M, Choi TM, Ebrahimi S. “Reverse supply chain systems optimization with dual channel and demand disruptions: Sustainability, CSR investment and pricing coordination”. Information Sciences, 503, 606-634, 2019.
17. Hou YT, Huo JZ, Chu F. “An Integrated Problem of-Hub Location and Revenue Management with Multiple Capacity Levels under Disruptions”. Journal of Advanced Transportation,Doi:10.1155/2019/1812543, 2019.
18. Rahmani K, Yavari M. “Pricing policies for a dual-channel green supply chain under demand disruptions”. Computers & Industrial Engineering, 127, 493-510, 2019.
19. Bugert N, Lasch R. “Effectiveness of responsive pricing in the face of supply chain disruptions”. Computers & Industrial Engineering, 124, 304-315, 2018.
20. Wilson MC. “The impact of transportation disruptions on supply chain performance”. Transportation Research Part E: Logistics and Transportation Review, 43(4), 295-320, 2007.