Interaction between Pricing and Inventory Management

This paper examines the effect that product pricing has on the dynamics and variability of a supply chain, with a focus in retail inventory. Pricing policies and strategies and the impacts of prices on demand and inventories within the retail supply chain environment are reviewed. Recent pricing and markdown research is examined. An example model is presented that is stochastic and uses simulation to study a two-echelon multi-period inventory system. The simulation methodology and the experimental design used are described. Then, the summary of the experimental results with discussion is presented. The last section outlines future research directions. Results show that large markdowns can produce significant losses, with revenues not covering ordering and product costs. Observations of these supply chain dynamics produce many additional research questions.