Price Dependent Inventory Model with Discount Offers at Random Times

• Main Authors: GOH, Mark, MOOSA, Sharafali
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Inventory management; random discount offers; pricing; lot sizing; Operations and Supply Chain Management; Operations Research, Systems Engineering and Industrial Engineering
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/888; https://doi.org/10.1111/j.1937-5956.2002.tb00488.x
• Institution: Singapore Management University

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.