Marketing-Production Decisions in an Industrial Channel of Distribution

Abstract

This paper presents a model that considers the interface between marketing and production decisions in a channel of distribution of industrial goods comprised of a manufacturer and a distributor. The key issue investigated is the nature of the coordination within the channel in light of an unstable pattern of seasonal demand. The investigation, which focuses on dynamic issues, considers production activities such as product delivery and inventory policy, and their link to marketing strategies such as pricing policies. The focus here is on the dynamic nature of the coordinational aspects of the various policies. For example, the following questions are addressed: What is the distributor's pricing strategy throughout the season? What is the nature of the contractual price in the channel? Under what conditions should the distributor carry no inventory throughout the seasonal period? Under what conditions should the manufacturer carry no inventory? What is the impact of the seasonal parameters and differing holding and processing costs upon the various policies of the distribution channel? We propose a mechanism to address these issues, and we provide explicit answers to these questions.

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