Joint pricing and ordering policies for deteriorating item with retail price-dependent demand in response to announced supply price increase

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April 2013, 9(2): 437-454. doi: 10.3934/jimo.2013.9.437

Joint pricing and ordering policies for deteriorating item with retail price-dependent demand in response to announced supply price increase

Chih-Te Yang ^1, , Liang-Yuh Ouyang ^2, , Hsiu-Feng Yen ^3, and Kuo-Liang Lee ^1,

1.	Department of Industrial Management, Chien Hsin University of Science and Technology, Jung-Li, Taoyuan 320, Taiwan, Taiwan
2.	Department of Management Sciences, Tamkang University, Tamsui, Taipei 251, Taiwan
3.	Department of Accounting, Tamkang University, Tamsui, Taipei 251, Taiwan

Received August 2011 Revised January 2013 Published February 2013

Abstract
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Recently, due to rapid economic development in emerging nations, the world's raw material prices have been rising. In today's unrestricted information environment, suppliers typically announce impending supply price increases at specific times. This allows retailers to replenish their stock at the present price, before the price increase takes effect. The supplier, however, will generally offer only limited quantities prior to the price increase, so as to avoid excessive orders. The retail price will usually reflect any supply price increases, as market demand is dependent on retail price. This paper considers deteriorating items and investigates (1) the possible effects of a supply price increase on retail pricing, and (2) ordering policies under the conditions that special order quantities are limited and demand is dependent on retail price. The purpose of this paper is to determine the optimal special order quantity and retail price to maximize profit. Our theoretical analysis examines the necessary and sufficient conditions for an optimal solution, and an algorithm is established to obtain the optimal solution. Furthermore, several numerical examples are given to illustrate the developed model and the solution procedure. Finally, a sensitivity analysis is conducted on the optimal solutions with respect to major parameters.

Keywords: limited special order quantity, price-dependent demand, deteriorating items., price increase, Inventory.

Mathematics Subject Classification: Primary: 90B05; Secondary: 90C9.

Citation: Chih-Te Yang, Liang-Yuh Ouyang, Hsiu-Feng Yen, Kuo-Liang Lee. Joint pricing and ordering policies for deteriorating item with retail price-dependent demand in response to announced supply price increase. Journal of Industrial and Management Optimization, 2013, 9 (2) : 437-454. doi: 10.3934/jimo.2013.9.437

References:

[1]	R. P. Covert and G. C. Philip, An EOQ model for items with Weibull distribution deterioration, AIIE Transactions, 5 (1973), 323-326.
[2]	P. S. Deng, R. H. Lin and P. A. Chu, A note on the inventory models for deteriorating items with ramp type demand rate, European Journal of Operations Research, 178 (2007), 112-120. doi: 10.1016/j.ejor.2006.01.028.
[3]	C. Y. Dye, Joint pricing and ordering policy for a deteriorating inventory with partial backlogging, Omega, 35 (2007), 184-189.
[4]	P. M. Ghare and G. H. Schrader, A model for exponentially decaying inventory system, Journal of Industrial Engineering, 163 (1963), 238-243.
[5]	A. K. Ghosh, On some inventory models involving shortages under an announced price increase, International Journal of Systems Science, 34 (2003), 129-137. doi: 10.1080/0020772031000152956.
[6]	S. K. Goyal, A note on the paper: An inventory model with finite horizon and price changes, Journal of the Operational Research Society, 30 (1979), 839-842.
[7]	S. K. Goyal and S. K. Bhatt, A generalized lot size ordering policy for price increases, Opsearch, 25 (1988), 272-278.
[8]	S. K. Goyal and B. C. Giri, Recent trends in modeling of deteriorating inventory, European Journal of Operations Research, 134 (2001), 1-6. doi: 10.1016/S0377-2217(00)00248-4.
[9]	Y. He, S. Y. Wang and K. K. Lai, An optimal production-inventory model for deteriorating items with multiple-market demand, European Journal of Operations Research, 203 (2010), 593-600.
[10]	W. Huang and V. G. Kulkarni, Optimal EOQ for announced price increases in infinite horizon, Operations Research, 51 (2003), 336-339. doi: 10.1287/opre.51.2.336.12785.
[11]	P. C. Jordan, Purchasing decisions considering future price increases: An empirical approach, Journal of Purchasing and Materials Management, 23 (1987), 25-30.
[12]	B. Lev and A. L. Soyster, An inventory model with finite horizon and price changes, Journal of the Operational Research Society, 30 (1979), 43-53.
[13]	B. Lev B. and H. J. Weiss, Inventory models with cost changes, Operations Research, 38 (1990), 53-63. doi: 10.1287/opre.38.1.53.
[14]	E. P. Markowski, Criteria for evaluating purchase quantity decisions in response to future price increases, European Journal of Operations Research, 47 (1990), 364-370.
[15]	I. Moon, B. C. Giri and B. Ko, Economic order quantity models for ameliorating/deteriorating items under inflation and time discounting, European Journal of Operations Research, 162 (2005), 773-785. doi: 10.1016/j.ejor.2003.09.025.
[16]	E. Naddor, "Inventory Systems," John Wiley & Sons, New York, 1966.
[17]	G. C. Philip, A generalized EOQ model for items with Weibull distribution, AIIE Transactions, 6 (1974), 159-162.
[18]	N. H. Shah, An order-level lot size inventory model for deteriorating items, AIIE Transactions, 9 (1977), 108-112.
[19]	N. H. Shah, A discrete-time probabilistic inventory model for deteriorating items under a known price increase, International Journal of Systems Science, 29 (1998), 823-827.
[20]	S. G. Taylor and C. E. Bradley, Optimal ordering strategies for announced price increases, Operations Research, 33 (1985), 312-325.
[21]	R. J. Tersine and E. T. Grasso, Forward buying in response to announced price increases, Journal of Purchasing and Materials Management, 14 (1978), 20-22.
[22]	K. S. Wu, L. Y. Ouyang and C. T. Yang, Coordinating replenishment and pricing policies for non-instantaneous deteriorating items with price sensitive demand, International Journal of Systems Science, 40 (2009), 1273-1281. doi: 10.1080/00207720903038093.
[23]	H. H. Yanasse, EOQ systems: The case of an increase in purchase cost, Journal of the Operational Research Society, 41 (1990), 633-637.
[24]	C. T. Yang, L. Y. Ouyang, and H. H. Wu, Retailer's optimal pricing and ordering policies for non-instantaneous deteriorating items with price-dependent demand and partial backlogging, Mathematical Problems in Engineering, 2009. doi: 10.1155/2009/198305.
[25]	M. J. Yao and Y. C. Wang, Theoretical analysis and a search procedure for the joint replenishment problem with deteriorating products, Journal of Industrial and Management Optimization, 1 (2005), 359-375. doi: 10.3934/jimo.2005.1.359.
[26]	J. C. P. Yu, H. M. Wee and K. J. Wang, Supply chain partnership for Three-Echelon deteriorating inventory model, Journal of Industrial and Management Optimization, 4 (2008), 827-842. doi: 10.3934/jimo.2008.4.827.

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References:

[1]	R. P. Covert and G. C. Philip, An EOQ model for items with Weibull distribution deterioration, AIIE Transactions, 5 (1973), 323-326.
[2]	P. S. Deng, R. H. Lin and P. A. Chu, A note on the inventory models for deteriorating items with ramp type demand rate, European Journal of Operations Research, 178 (2007), 112-120. doi: 10.1016/j.ejor.2006.01.028.
[3]	C. Y. Dye, Joint pricing and ordering policy for a deteriorating inventory with partial backlogging, Omega, 35 (2007), 184-189.
[4]	P. M. Ghare and G. H. Schrader, A model for exponentially decaying inventory system, Journal of Industrial Engineering, 163 (1963), 238-243.
[5]	A. K. Ghosh, On some inventory models involving shortages under an announced price increase, International Journal of Systems Science, 34 (2003), 129-137. doi: 10.1080/0020772031000152956.
[6]	S. K. Goyal, A note on the paper: An inventory model with finite horizon and price changes, Journal of the Operational Research Society, 30 (1979), 839-842.
[7]	S. K. Goyal and S. K. Bhatt, A generalized lot size ordering policy for price increases, Opsearch, 25 (1988), 272-278.
[8]	S. K. Goyal and B. C. Giri, Recent trends in modeling of deteriorating inventory, European Journal of Operations Research, 134 (2001), 1-6. doi: 10.1016/S0377-2217(00)00248-4.
[9]	Y. He, S. Y. Wang and K. K. Lai, An optimal production-inventory model for deteriorating items with multiple-market demand, European Journal of Operations Research, 203 (2010), 593-600.
[10]	W. Huang and V. G. Kulkarni, Optimal EOQ for announced price increases in infinite horizon, Operations Research, 51 (2003), 336-339. doi: 10.1287/opre.51.2.336.12785.
[11]	P. C. Jordan, Purchasing decisions considering future price increases: An empirical approach, Journal of Purchasing and Materials Management, 23 (1987), 25-30.
[12]	B. Lev and A. L. Soyster, An inventory model with finite horizon and price changes, Journal of the Operational Research Society, 30 (1979), 43-53.
[13]	B. Lev B. and H. J. Weiss, Inventory models with cost changes, Operations Research, 38 (1990), 53-63. doi: 10.1287/opre.38.1.53.
[14]	E. P. Markowski, Criteria for evaluating purchase quantity decisions in response to future price increases, European Journal of Operations Research, 47 (1990), 364-370.
[15]	I. Moon, B. C. Giri and B. Ko, Economic order quantity models for ameliorating/deteriorating items under inflation and time discounting, European Journal of Operations Research, 162 (2005), 773-785. doi: 10.1016/j.ejor.2003.09.025.
[16]	E. Naddor, "Inventory Systems," John Wiley & Sons, New York, 1966.
[17]	G. C. Philip, A generalized EOQ model for items with Weibull distribution, AIIE Transactions, 6 (1974), 159-162.
[18]	N. H. Shah, An order-level lot size inventory model for deteriorating items, AIIE Transactions, 9 (1977), 108-112.
[19]	N. H. Shah, A discrete-time probabilistic inventory model for deteriorating items under a known price increase, International Journal of Systems Science, 29 (1998), 823-827.
[20]	S. G. Taylor and C. E. Bradley, Optimal ordering strategies for announced price increases, Operations Research, 33 (1985), 312-325.
[21]	R. J. Tersine and E. T. Grasso, Forward buying in response to announced price increases, Journal of Purchasing and Materials Management, 14 (1978), 20-22.
[22]	K. S. Wu, L. Y. Ouyang and C. T. Yang, Coordinating replenishment and pricing policies for non-instantaneous deteriorating items with price sensitive demand, International Journal of Systems Science, 40 (2009), 1273-1281. doi: 10.1080/00207720903038093.
[23]	H. H. Yanasse, EOQ systems: The case of an increase in purchase cost, Journal of the Operational Research Society, 41 (1990), 633-637.
[24]	C. T. Yang, L. Y. Ouyang, and H. H. Wu, Retailer's optimal pricing and ordering policies for non-instantaneous deteriorating items with price-dependent demand and partial backlogging, Mathematical Problems in Engineering, 2009. doi: 10.1155/2009/198305.
[25]	M. J. Yao and Y. C. Wang, Theoretical analysis and a search procedure for the joint replenishment problem with deteriorating products, Journal of Industrial and Management Optimization, 1 (2005), 359-375. doi: 10.3934/jimo.2005.1.359.
[26]	J. C. P. Yu, H. M. Wee and K. J. Wang, Supply chain partnership for Three-Echelon deteriorating inventory model, Journal of Industrial and Management Optimization, 4 (2008), 827-842. doi: 10.3934/jimo.2008.4.827.

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