Dynamic replenishment, production, and pricing decisions in the face of supply disruption and random price-sensitive demand

Stuart X. Zhu*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

24 Citations (Scopus)

Abstract

We study a joint decision problem for replenishment, production, pricing strategies in the face of both supply and demand uncertainties. The supply of the raw material suffers from a potential supply disruption while the demand for the finished goods is price-sensitive and random. We assume that the raw material is storable and unfilled demands are fully backordered. We characterize the optimal policies for raw-material replenishment, finished-goods production, and pricing. We find that the optimal replenishment policy is an order-up-to type for a given finished-goods stock level while it is a threshold type for a given raw-material stock level. For either a given finished-goods stock level or a given raw-material stock level, the optimal production policy is a threshold type and the optimal pricing policy is a modified list-price type, respectively. (C) 2013 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)612-619
Number of pages8
JournalInternational Journal of Production Economics
Volume146
Issue number2
DOIs
Publication statusPublished - Dec-2013

Keywords

  • Replenishment
  • Production
  • Pricing
  • Supply disruption
  • Random and price-sensitive demand
  • COORDINATING INVENTORY CONTROL
  • FIXED ORDERING COST
  • UNCERTAIN DEMAND
  • RANDOM YIELD
  • CAPACITY
  • PROCUREMENT
  • DIVERSIFICATION
  • STRATEGIES
  • POLICIES
  • MODELS

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