Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs
Dynamic Pricing and Inventory Management Under Fluctuating Procurement Costs

Author: Guang Xiao

Publisher:

Published: 2015

Total Pages: 38

ISBN-13:

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We consider a periodic review joint pricing and inventory control model in which a firm faces both stochastic demand and fluctuating procurement costs. To address procurement cost fluctuation, the firm adopts a dual-sourcing strategy, under which it procures from a spot market with immediate delivery and through a forward-buying contract with postponed delivery. Our analysis offers the unique insight that a risk-neutral firm may earn higher expected profit under a more volatile procurement cost process. This is because the firm makes its pricing and sourcing decisions in response to the realized cost in each period. Moreover, we characterize how the firm should dynamically adjust its pricing and sourcing decisions in accordance to cost evolution. For example, if sourcing through the forward-buying contract is less expensive than sourcing directly from the spot market, the optimal safety stock is decreasing in the current spot market purchasing cost. However, the optimal order quantity through the forward-buying contract is, in general, not monotone in the current spot-purchasing cost. Finally, we conduct extensive numerical experiments to show that dynamic pricing and dual-sourcing may be either strategic complements or substitutes in the presence of fluctuating procurement costs and uncertain demand. This is because dynamic pricing mitigates demand uncertainty risk and exploits procurement cost fluctuation, while dual-sourcing may either intensify or dampen demand risk.

Dynamic Pricing and Production Control in a Two-Item Make-to-Stock System with Flexible Dual Sourcing and Lost Sales
Dynamic Pricing and Production Control in a Two-Item Make-to-Stock System with Flexible Dual Sourcing and Lost Sales

Author: Ruobing Li

Publisher:

Published: 2023

Total Pages: 0

ISBN-13:

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We consider a joint control of pricing and production in a two-item inventory system, where each item can be produced by its dedicated source or a shared flexible source, under the lost-sales setting. The demands of the two items are correlated. Due to the complexity caused by the lost-sales assumption and the interplay between pricing and production decisions, we show the optimal value function satisfies five structural properties under certain conditions. The optimal ordering and pricing policies are then fully characterized by five production curves and two pricing functions. Different from existing literature, we show that the optimal price path may not be monotone in the inventory level of either item. Next, we estimate the value of flexibility by comparing two systems, one with the flexible source only and the other with the dedicated source only and show that the value of flexibility is positive if the flexible source has a faster production rate and a lower production cost. Through numerical experiments, we find that in most cases flexibility and dynamic pricing are substitute except for a few exceptions; and product substitution can either increase or decrease the value of flexibility.

Dynamic Pricing and Procurement with Buy-One-Get-One Promotions
Dynamic Pricing and Procurement with Buy-One-Get-One Promotions

Author: Yuefeng Li

Publisher:

Published: 2022

Total Pages: 0

ISBN-13:

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Strategic inventory plays a vital role in a manufacturer-retailer dynamic contract. By holding inventories in a period, the retailer curtails the manufacturer's pricing power in the next period and alleviates double marginalization, significantly increasing the manufacturer's and retailer's profits and improving consumer surplus. The retailer's strategic inventory stems from strategic consideration (dynamic games) regardless of uncertainties, fluctuations, capacities, etc. In this paper, we investigate how consumers' strategic inventory (i.e., consumer stockpiling) alters the retailer's strategic inventory as well as the subgame perfect equilibrium. We extend the model of Anand et al. (2008) by adding Buy-One-Get-One (BOGO) promotions in the first period. We show that the retailer has a strong motive to transfer inventory to consumers. Our results hold if consumers are myopic or strategic and anticipate the price in the second period. We also examine our results in a multi-period model over a finite horizon. To compare BOGO to cash-mail-in rebates, we study a manufacturer-to-consumer BOGO in such a dynamic contract. The result reveals that, unlike rebates, the manufacturer does not offer BOGO to consumers but the retailer does, implying that the pricing scheme with BOGO differs from rebates. Finally, we extend our base model to three production cost structures: (1) fixed setup cost; (2) diseconomies of scale; and (3) production cost savings, and find that the cost structure has a significant impact on the optimal supply chain inventory and BOGO promotions decisions.

Some Problems in Inventory Management
Some Problems in Inventory Management

Author: Suddha Sankar Dutta

Publisher: LAP Lambert Academic Publishing

Published: 2010-08

Total Pages: 152

ISBN-13: 9783838394404

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Inventory management is maintenance of physical stock of goods to meet future demands for efficient functioning of a management system. The present work considers inventory control problems for the following situations: (a) The case of an item with an acceptable substitute for some of the customers, when the original is out of stock and when (b) the two items are mutually substitutable. (c) Stocking cum pricing system, considering the effect of consumer behavior subject to pricing. (d) The case of single discount offers. (e) The case of randomly fluctuating price as seen in open markets. Dynamic set up with fluctuating procurement cost and varying demand densities over different periods is studied. (f) Estimation from of censored demand or sales data is studied for the newsboy problem.(g) The robustness of the newsboy model and the periodic review inventory model are examined for modelling error that is when the demand distribution is incorrectly estimated.

Dynamic Revenue and Inventory Management Models
Dynamic Revenue and Inventory Management Models

Author: Yifeng Liu

Publisher:

Published: 2014

Total Pages: 127

ISBN-13:

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Effective pricing and inventory controls are very important for the success of a company, especially in an environment with many uncertainties such as random demand and fluctuating cost. In this work, we first consider pure dynamic pricing. Indeed, we consider three cases: markup in which price can only go up, markdown in which price can only go down, and reversible pricing in which price can go either direction. We also consider a joint pricing and inventory control model in which the raw material price evolves as a Markov process. For this model, we suppose production is make-to-order, so that the conversion from raw material to finished product is carried out only when demand arrives. For the pure pricing model, we establish the optimality of threshold-like policies. We also develop efficient and numerically stable algorithms. For the make-to-order joint inventory-pricing model, we demonstrate the optimality of a base-stock-list-price policy. In addition, we identify conditions under which policy parameters would exhibit monotone trends. Moreover, we showed the significant benefit of adopting cost-dependent base-stock list-price policy.

Purchasing & Materials Management
Purchasing & Materials Management

Author: Dewan

Publisher: Discovery Publishing House

Published: 1996

Total Pages: 244

ISBN-13: 9788171413546

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Contents: Purchasing Input/Output Management, Materials Management, Procurement Policy, Purchasing Procedures, Purchase Accounting, Purchase Budgeting, Maintain Enough Stock, Basic Principles of Inventory Control, Controlling Stocks, Purchasing and Suppliers, Records Keeping.

Dynamic Pricing and Inventory Control
Dynamic Pricing and Inventory Control

Author: Elodie Adida

Publisher: VDM Publishing

Published: 2007

Total Pages: 288

ISBN-13: 9783836421430

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(cont.) We introduce and study a solution method that enables to compute the optimal solution on a finite time horizon in a monopoly setting. Our results illustrate the role of capacity and the effects of the dynamic nature of demand. We then introduce an additive model of demand uncertainty. We use a robust optimization approach to protect the solution against data uncertainty in a tractable manner, and without imposing stringent assumptions on available information. We show that the robust formulation is of the same order of complexity as the deterministic problem and demonstrate how to adapt solution method. Finally, we consider a duopoly setting and use a more general model of additive and multiplicative demand uncertainty. We formulate the robust problem as a coupled constraint differential game. Using a quasi-variational inequality reformulation, we prove the existence of Nash equilibria in continuous time and study issues of uniqueness. Finally, we introduce a relaxation-type algorithm and prove its convergence to a particular Nash equilibrium (normalized Nash equilibrium) in discrete time.

Integrating Dynamic Pricing and Inventory Control for Fresh-Agri Product Under Consumer Choice
Integrating Dynamic Pricing and Inventory Control for Fresh-Agri Product Under Consumer Choice

Author: Hawking Wang

Publisher:

Published: 2019

Total Pages: 0

ISBN-13:

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In this article, we investigate a joint pricing and inventory problem for a retailer selling fresh-agri products (FAPs) with two-period shelf lifetime in a dynamic stochastic setting, where new and old FAPs are on sale simultaneously. At the beginning of each period, the retailer makes ordering decision for new FAP and sets regular and discount prices for new and old inventories, respectively. After demand realisation, the expired leftover is disposed and unexpired inventory is carried to the next period, for continuing selling. Unmet demand of all FAPs is backordered. The objective is to maximise the total expected discount profit over the whole planning horizon. We present a price dependent, stochastic dynamic programming model taking into account zero lead-time, linear ordering costs, inventory holding and backlogging costs, as well as disposal cost. As the influence of the perishability, each customer selects his preferred choice based on the utility of product price and quality. By the way of constructing demand rate vector, the original formulation can be transferred to be jointly concave and tractable. Finally, we characterise the optimal policy and develop effective methods to solve the problem. We also conduct numerical studies to further characterise the optimal policy, and to evaluate the loss of efficiency under static policies when compared to the optimal dynamic policy.