Advanced Booking Discount Program: A Coordinating Strategy for SMEs Food Processors on Managing Demand Uncertainty

Abstract

Because demand for processed food products is uncertain, the processors face dilemma to satisfy their customers. The processors are unable to sell their products if demand turns out to be low. That is, some of the products will expire, the producer would have been better off by producing less. But if the processors choose to produce less to ensure that the entire products are sold, there will be an excess of demand if demand turns out to be high. In this case the processors would have been better off by choosing to produce large quantity. The dilemma is more experienced by SMEs food processors because they lack enough capital to acquire advanced technologies to assist in decision making. In this paper an attempt has been made to address the coordinating effects of ABD program in managing demand uncertainty. Fruits and vegetables drying factory has been focused as a case study. Theoretical expressions supported by explanatory mathematical equations have been offered. It is noted that the processor may achieve better decisions and managed demand uncertainty once they agree upon information sharing.