A robust optimization approach for inventory management with limited-time discounts and service-level requirement under demand uncertainty

Yimeng Sun, Ruozhen Qiu and Minghe Sun

International Journal of Production Economics, 2024, vol. 267, issue C

Abstract: A multi-period inventory management problem is considered for a retailer offering limited-time discounts and having a joint service-level requirement over the discount periods under demand uncertainty. In each period, the retailer, only knowing a reference value and the bounds of the uncertain demand, has to determine the order quantity of the product before demand realizations to maximize the total profit over the planning horizon while achieving the required service level over the discount periods. A budgeted uncertainty set is adopted to accommodate demand uncertainty and a joint chance constraint is used to formulate the service-level requirement. The retailer problem is formulated as an affinely adjustable robust chance-constrained model and is transformed into a linear program. A double-layer iterative approach is proposed to solve the problem. The outer layer uses a posteriori method to update the budget coefficient. The inner layer solves the affinely adjustable robust chance-constrained model with the updated budget coefficient, and obtains the updated order quantities. A case study based on real data demonstrates that the proposed approach outperforms other approaches by better balancing the average realized profit and the realized service level. Moreover, the results show that the retailer can obtain a larger average realized profit by gradually than abruptly changing the prices.

Keywords: Inventory; Limited-time discount; Service level; Demand uncertainty; Adjustable robust optimization (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527323003286
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:267:y:2024:i:c:s0925527323003286

DOI: 10.1016/j.ijpe.2023.109096

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().