Coordinating Inventory Control and Pricing Strategies with Random Demand and Fixed Ordering Cost: The Finite Horizon Case
By Xin Chen, David Simchi-Levi. Operational Research, 2004
463 citations recorded by the source corpus.
We analyze an infinite horizon, single-product, periodic review model in which pricing and production/inventory decisions are made simultaneously. Demands in different periods are identically distributed random variables that are independent of each other, and their distributions depend on the product price. Pricing and ordering decisions are made at the beginning of each period, and all shortages are backlogged. Ordering cost includes both a fixed cost and a variable cost proportional to the amount ordered. The objective is to maximize expected discounted, or expected average, profit over the infinite planning horizon. We show that a stationary ( s,S,p) policy is optimal for both the discounted and average profit models with general demand functions. In such a policy, the period inventory is managed based on the classical ( s,S) policy, and price is determined based on the inventory position at the beginning of each period.
Subfields: Industrial and Manufacturing Engineering, Management Information Systems
View Paper: https://www.semanticscholar.org/paper/4c61848291f65f8027f84af7546fc0901d739613
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In Industrial and Manufacturing Engineering
In Management Information Systems
- Qian Liu
- M. G. Güler
- Eugene A. Feinberg
- G. V. Ryzin
- Mahmut Parlar
- Taner Bilgiç
- Jian Huang
- Refik Güllü
Citations in the corpus
- Strategic Capacity Rationing to Induce Early Purchases (2008, background): “Strategic interaction among customers is considered by Elmaghraby et al. (2008), Gallien (2006), Harris and Raviv (1981), Aviv and Pazgal (2008), Cachon and Swinney (2007), Koenigsberg et al.”
- Demand Functions in Decision Modeling: A Comprehensive Survey and Research Directions (2013, background): “Chen and Simchi-Levi (2004a) constructed another hybrid additive-multiplicative model that has two risk components, D(p, ε) = ε1d(p) + ε2, where the two terms ε1 and ε2 are random variables and without loss of generality, they are assumed to have the mean values E(ε1) = 1 and E(ε2) = 0.”
- Optimality Conditions for Inventory Control (2016, background): “6 (Chen and Simchi-Levi [17, 18], Feinberg and Lewis [26]).”
- Joint inventory and pricing decisions with reference effects (2014, background): “Chen and Simchi-Levi (2004a, 2004b) introduce a setup cost to this setting while Chen and Simchi-Levi (2006) study continuous-review versions of this problem with a setup cost.”