The effect of order incentives in a multi-product dynamic inventory model

Bin Zhou, Hua Zhong and John Wang

International Journal of Operational Research, 2021, vol. 42, issue 1, 73-90

Abstract: This paper addresses the challenges in a multi-product inventory system with uncertain demands. As an incentive, free shipping is used by the supplier to stimulate large orders from customer, who reviews and restocks inventory periodically. The model is first established through stochastic dynamic programming and the characteristics of the optimal policies are analysed. As the optimal control policies are found very complex, accurate lower bound approximations and effective heuristic policies are proposed and discussed. Finally, performance of the lower bounds and heuristics is evaluated through extensive numerical studies which also evaluate the effects of key system parameters including service levels and varied costs.

Keywords: production and inventory management; multiple products; stochastic model; heuristics. (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijores:v:42:y:2021:i:1:p:73-90

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