Best pricing and optimal policy for an inventory system under time-and-price-dependent demand and backordering

In this paper, we study an inventory system for products where demand depends on time and price. Shortages are allowed and are fully backordered. We suppose that the demand rate is the product of a power time pattern and a three-parametric exponential price function. The objective is to determine th...

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Bibliographic Details
Published in:Annals of operations research 2020-03, Vol.286 (1-2), p.351-369
Main Authors: San-José, Luis A., Sicilia, Joaquín, González-De-la-Rosa, Manuel, Febles-Acosta, Jaime
Format: Article
Language:English
Subjects:
Business and Management
Combinatorics
Inventory control
Inventory management
Operations research
Operations Research/Decision Theory
Profit maximization
S.i.: Claio 2016
Sensitivity analysis
Shortages
Studies
Theory of Computation
Time dependence
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Summary:In this paper, we study an inventory system for products where demand depends on time and price. Shortages are allowed and are fully backordered. We suppose that the demand rate is the product of a power time pattern and a three-parametric exponential price function. The objective is to determine the economic lot size, the optimal shortage level and the best selling price to maximize the total profit per unit time. We present an efficient procedure to determine the optimal solution of the inventory problem for all possible scenarios. This procedure is illustrated with several numerical examples. A sensitivity analysis of the optimal inventory policy with respect to the parameters of the demand rate function is also given. Finally, the main contributions of this paper are highlighted and future research directions are introduced.
ISSN:0254-5330
1572-9338
DOI:10.1007/s10479-018-2953-5