Supply Chain Pricing Strategy for Short-Lived Ramp-Type Demand Models

Natural hazards, such as estern Japan earthquake in 2011 and human-induced crises, such as the bankruptcy of Lehman Brothers in 2008, is harmful to global supply chain management. Therefore, a need exists to rethink the methodology for responding to crises. It is well known that the bullwhip effect due to order forecasting and demand fluctuations decrease supply chain efficiency. Compared to the conventional bullwhip effects, short-lived demand changes caused by unexpected natural disasters or a financial crisis can adversely affect supply chain performance. This work discusses the effects of four ramp-type demands using a novel supply chain cost model. Ramp-type demand increases within a short period can lead to profit loss; and consequently, an appropriate pricing strategy should be adopted. Based on price elasticity, demand types and their lifetimes, and supply chain parameters, the price premium can be determined to obtain the highest profit. Simulation results provide guidelines for supply chain managers dealing with demand fluctuations due to natural or human-induced crises.