Price Dependent Inventory Model with Discount Offers at Random Times
An inventory model with a supplier offering discounts to a reseller at random epochs is considered. The offer is accepted when the inventory position is lower than a threshold level. Three different pricing policies in which demand is induced by the reseller's price variation are compared. Policy I is the EOQ policy without discount offers. Policy 2 is a uniform price, stock-independent policy. Policy 3 is a stock level-dependent, discriminated price policy. Assuming constant demand rates, expressions are obtained for the optimal order quantities, prices, and profits. The numerical experiments show that if it is better to accept a supplier's discount, then it benefits the reseller to transfer the discount to downstream customers.
Inventory management, random discount offers, pricing, lot sizing
Operations and Supply Chain Management | Operations Research, Systems Engineering and Industrial Engineering
Production and Operations Management
GOH, Mark and MOOSA, Sharafali.
Price Dependent Inventory Model with Discount Offers at Random Times. (2002). Production and Operations Management. 11, (2), 139-156. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/888