Examine the significance of collaboration between the retailer and the manufacturer by developing an aggregate production planning-double markdown pricing model

In the current business environment of China, firms have to confront their competitors by introducing new products (and/or services) faster and cheaper than ever before. Consequently, it becomes one of the factors making the product lifecycle being shortened and therefore cooperation between the manufacturer and the retailer is very important. Unfortunately, in the traditional business mode in China, for the short lifecycle product, the retailer wildly adopts markdown pricing strategy for maximizing the revenue and then the manufacturer usually develops an aggregate production plan for minimizing the cost based on the retailers' order pattern in a sequential manner. A combined model, Aggregate Production Planning-Double Markdown Pricing Model (APP-DMP), is developed to examine the significance of the cooperative business mode by integrating the double markdown model into Aggregate Production Planning model. The APP-DMP helps the retailer and the manufacturer simultaneously make the pricing decisions, including the magnitude and time of markdown, and operational decisions e.g. inventory for greater profits. The results of the numerical examples show that this cooperative mode definitely increases the profits for the system which is well-known. In addition, the results also provide some insights for implementing double markdown as well. In addition, the belief "selling more and earning more" from the retailer may be suspicious based on the result of our model