PRICING AND ORDERING STRATEGIES IN MANUFACTURING AND DISTRIBUTION ALLIANCES

This paper studies the effect of coordination in a manufacturing and d istribution system consisting of one manufacturer and one distributor. The system operates to meet price-sensitive random demand with the ob jective of maximizing expected profits of both the manufacturer and th e distributor. The coordinated pricing and production/ordering policie s that maximize the expected profits of the manufacturer and the distr ibutor, as well as the distributor's optimal pricing and ordering poli cies without coordination, are developed. The focus of this study is t o address the following managerial questions: What factors make coordi nation an effective strategy for both the manufacturer and the distrib utor? What are the coordination strategies and the coordinated policie s that maximize both parties' expected profits and the joint expected profit? These and other related managerial issues are explored in this paper.