INVENTORY DECISIONS WITH DECREASING PURCHASING COSTS

Xiangpei Hu, Huimin Wang and Yunzeng Wang
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Xiangpei Hu: School of Management, Dalian University of Technology, Dalian, P. R. China
Huimin Wang: The Business School, Hohai University, Nanjing, P. R. China
Yunzeng Wang: The School of Business Administration, University of California, Riverside, CA 92521, USA

Asia-Pacific Journal of Operational Research (APJOR), 2012, vol. 29, issue 01, 1-14

Abstract: Costs of many items drop systematically throughout their life-cycles, due to advances in technology and competition. Motivated by the management of service parts for some high-tech products, this paper studies inventory decisions for such items. In a periodic review setting with stochastic demand, we model the purchasing costs of successive periods as a stochastic and decreasing sequence. Unit selling price of the item is determined as some mark-up of the purchasing cost and, hence, will change over time as well. We consider two specific mark-up models: (1) purchasing cost plus constant-dollar-amount mark-up, and (2) purchasing cost plus constant-percentage mark-up. To maximize the total discounted expected profit, we derive conditions under which myopic policies are optimal for the systems.

Keywords: Inventory control; periodic review system; myopic policy (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217595912400027

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