Raw material procurement with fluctuating prices

Jan Arnold, Stefan Minner and Björn Eidam

International Journal of Production Economics, 2009, vol. 121, issue 2, 353-364

Abstract: Increasing global competition and cost pressure force enterprises and supply chains to discover undetected cost-saving potentials. In particular, interfaces to the raw materials' market are a promising field for improvement. This paper presents a deterministic optimal control approach optimizing the procurement and inventory policy of an enterprise that is processing a raw material when the purchasing price, holding cost, and the demand rate fluctuate over time. Applying Pontryagin's maximum principle, the optimal policy turns out to be of a bang-bang type involving impulse and just-in-time procurement. Numerical examples illustrate the solutions obtained and compare the optimal policy with simple replenishment strategies.

Keywords: Raw; material; procurement; Inventory; Theory; of; optimal; control (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:121:y:2009:i:2:p:353-364

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