Optimal order policy in response to announced price increase for deteriorating items with limited special order quantity

Liang-Yuh Ouyang, Kun-Shan Wu, Chih-Te Yang and Hsiu-Feng Yen

International Journal of Systems Science, 2016, vol. 47, issue 3, 718-729

Abstract: When a supplier announces an impending price increase due to take effect at a certain time in the future, it is important for each retailer to decide whether to purchase additional stock to take advantage of the present lower price. This study explores the possible effects of price increases on a retailer's replenishment policy when the special order quantity is limited and the rate of deterioration of the goods is assumed to be constant. The two situations discussed in this study are as follows: (1) when the special order time coincides with the retailer's replenishment time and (2) when the special order time occurs during the retailer's sales period. By analysing the total cost savings between special and regular orders during the depletion time of the special order quantity, the optimal order policy for each situation can be determined. We provide several numerical examples to illustrate the theories in practice. Additionally, we conduct a sensitivity analysis on the optimal solution with respect to the main parameters.

Date: 2016
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DOI: 10.1080/00207721.2014.902157

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