A Comprehensive Set of Models of Intra and Inter-Organizational Coordination in a Supply Chain

This paper presents a set of eight models of coordination for pricing and order quantity decisions in a supply chain consisting of one manufacturer and one retailer of a product with price sensitive demand. In many organisations, the marketing department makes the pricing decisions, whereas the operations department makes the order quantity decisions. Yet, many researchers have suggested that organisations can benefit from intra-organisational coordination for these two decisions. Similarly, in a typical supply chain, the manufacturer's decisions are not coordinated with the retailer's decisions. So far, many researchers have suggested that a supply chain can benefit from the coordination of the order quantity decisions of the manufacturer and the retailer. Others have recommended supply chain coordination for pricing decisions. Thus, there are a number of possibilities for intra- and inter-organisational coordination (or a lack of coordination) for the pricing and order quantity decisions in a supply chain. We study each possibility and compare its advantages and disadvantages relative to other coordination possibilities. The analysis leads to interesting and, at times, paradoxical results. For example, we find that, in the absence of inter-, intra-organisational coordination by either the manufacturer or the retailer, or both, leads to a reduction in the supply chain's profit compared to its profit from a no-coordination situation. As would be expected, complete intraand inter-organisational coordination results in the best profit for the supply chain. However, the supply chain's profit from inter-organisational coordination for pricing decisions alone is only marginally smaller than the profit from complete coordination. Hence, considering the tangible and intangible costs of a coordination mechanism, we recommend that a supply chain should coordinate its pricing decisions, but should not indulge in the coordination of its order quantity decisions. An extensive sensitivity analysis confirms our major findings and yields interesting insights into the relative advantages and disadvantages of various coordination possibilities in marketing and inventory-related decisions