Optimal pricing and inventory policies with reliable and random-yield suppliers: characterization and comparison

Xiuli Chao (), Xiting Gong () and Shaohui Zheng ()
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Xiuli Chao: University of Michigan
Xiting Gong: The Chinese University of Hong Kong
Shaohui Zheng: Hong Kong University of Science and Technology

Annals of Operations Research, 2016, vol. 241, issue 1, No 4, 35-51

Abstract: Abstract In this paper, we study the joint pricing and inventory replenishment problem for a periodic-review inventory system with random demand and dual suppliers, one of the suppliers is reliable but more expensive, the other supplier is less expensive but is unreliable with random yield. We characterize the firm’s optimal policies that simultaneously determine the optimal ordering and pricing decisions in each period over a finite planning horizon, and investigate the impacts of supply source diversification and supplier reliability on the firm and on its customers. We show that having source diversification or higher reliability of suppliers not only increases the firm’s expected profit, but also results in a lower optimal selling price, thus they benefit both the firm and its customers.

Keywords: Inventory control; Dual sourcing; Pricing; Random yield (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s10479-014-1547-0

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