Optimal Replenishment and Pricing Decisions Under the Collect-on-Delivery Payment Scheme

Abstract

In this paper, we study how the timing of payments affects joint replenishment and pricing decisions. Specifically, we consider a periodic review system in which consumers pay upon receiving their goods, referred to as the collect-on-delivery (COD) scheme, as opposed to paying when placing their orders, referred to as the instant payment scheme commonly assumed in the literature. We show that a base-stock list price policy is optimal without a fixed ordering cost, and provide a sufficient condition for an (s, S, p) policy to be optimal with a fixed ordering cost. We also perform both analytical and numerical studies to compare the two schemes.

Keywords: payment scheme, collect-on-delivery, joint replenishment and pricing optimization, fixed cost