Buyer-vendor inventory coordination with quantity discount incentive for fixed lifetime product

In this paper, a single-vendor, single-buyer supply chain for fixed lifetime product is considered. We propose models to analyze the benefit of coordinating supply chain through quantity discount strategy. Under the proposed strategy, the buyer is requested to alter his current order size such that the vendor can benefit from lower costs, and quantity discount is offered by the vendor to compensate the buyer for his increased inventory cost, and possibly provide an additional savings. In addition, the centralized decision-making model is formulated to examine the effectiveness of the proposed quantity discount model. It is proved that the quantity discount strategy can achieve system optimization and win-win outcome. At last, a detailed numerical example is presented to illustrate the benefit of the proposed strategy.