Coordination of investment decisions on marketing and logistics for the optimal supply chain operations

Abstract

The purpose of this study is to coordinate investment decisions for marketing and logistics function in the operations of the supply chains. Although it is an important issue to coordinate these two decision factors in the supply chain operations, most of previous researches considered the two decisions separately. We provide a solution procedure to determine the optimal level of marketing activities and investment on logistics cost reduction. In this paper, we consider a distributor with three decision factors. First, the distributor can control demand to maximize profit through pricing. Second, the distributor can reduce ordering cost by investment on advanced logistics systems. Third, the distributor's investment on promotion enables additional demand. In order to define optimal integrated strategies, we establish a solution procedure to determine the optimal pricing and investment decisions, and provide four investment policies. Comparison of these policies shows that investment coordination between marketing and ordering cost reduction maximizes a distributor's profit by trade-offs. A detailed analysis is presented to describe managerial guidelines to make investment coordination under various conditions.