The role of pricing in supply chain profits

Some supply chain managers favor "Everyday Low Pricing" (EDLP) strategies to reduce demand distortion, improve customer service, and lower costs. Others apply "High-Low Pricing" (HLP) strategies to clear slow moving items and build retail traffic, thereby increasing revenues. Studies comparing these strategies tend to have one of two key limitations: either a myopic focus on the retail level that ignores antecedent processes within the supply chain, or an assumption of constant demand. We attempt to address these limitations with our deterministic 3-level supplychain planning model, which simultaneously optimizes price, promotion, replenishment, and production planning decisions. To discover the conditions that tend to favor each policy, we use the model to compare EDLP and HLP pricing policies in supply chain environments with different demand patterns, price-demand elasticity, production and inventory cost structures, and production volume flexibility.