Joint Order and Promotion Effort Decisions for a Fashion Apparel Commodity under Pre-determined Markdown

Abstract

This work considers a two-stage newsvendor-type problem of a moderately stylish product with a short life cycle. The objective is to analyze the concurrent order and promotional effort decisions under the predetermined markdown. The model was initially developed for the decentralized supply chain and later extended to consider the vertical integration of the brand vendor and single retailer. The existence of jointly optimal decisions was then verified and a valuable comparison of decisions between models was made. Depending on various consequences of understock, this work found a simple structure of joint decisions according to markdown. Furthermore, contracts and sensitivity analyses from computational experiments are proposed.