IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v64y2016icp86-101.html
   My bibliography  Save this article

Coordinating pricing and production decisions for multiple products

Author

Listed:
  • Bajwa, Naeem
  • Sox, Charles R.
  • Ishfaq, Rafay

Abstract

We consider a dynamic problem of joint pricing and production decisions for a profit-maximizing firm that produces multiple products. We model the problem as a mixed integer nonlinear program, incorporating capacity constraints, setup costs, and dynamic demand. We assume demand functions to be convex, continuous, differentiable, and strictly decreasing in price. We present a solution approach which is more general than previous approaches that require the assumption of a specific demand function. Using real-world data from a manufacturer, we study problem instances for different demand scenarios and capacities and solve for optimal prices and production plans. We present analytical results that provide managerial insights on how the optimal prices change for different production plans and capacities. We extend some of the earlier works that consider single product problems to the case of multiple products and time variant production capacities. We also benchmark performance of proposed algorithm with a commercial solver and show that it outperforms the solver both in terms of solution quality and computational times.

Suggested Citation

  • Bajwa, Naeem & Sox, Charles R. & Ishfaq, Rafay, 2016. "Coordinating pricing and production decisions for multiple products," Omega, Elsevier, vol. 64(C), pages 86-101.
  • Handle: RePEc:eee:jomega:v:64:y:2016:i:c:p:86-101
    DOI: 10.1016/j.omega.2015.11.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048315002509
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.omega.2015.11.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hanan Luss & Shiv K. Gupta, 1975. "Technical Note—Allocation of Effort Resources among Competing Activities," Operations Research, INFORMS, vol. 23(2), pages 360-366, April.
    2. Shiming Deng & Candace A. Yano, 2006. "Joint Production and Pricing Decisions with Setup Costs and Capacity Constraints," Management Science, INFORMS, vol. 52(5), pages 741-756, May.
    3. Paul H. Zipkin, 1980. "Simple Ranking Methods for Allocation of One Resource," Management Science, INFORMS, vol. 26(1), pages 34-43, January.
    4. Zhang, Jie & Kevin Chiang, Wei–yu & Liang, Liang, 2014. "Strategic pricing with reference effects in a competitive supply chain," Omega, Elsevier, vol. 44(C), pages 126-135.
    5. Rana, Rupal & Oliveira, Fernando S., 2014. "Real-time dynamic pricing in a non-stationary environment using model-free reinforcement learning," Omega, Elsevier, vol. 47(C), pages 116-126.
    6. F. J. Arcelus & G. Srinivasan, 1987. "Inventory Policies Under Various Optimizing Criteria and Variable Markup Rates," Management Science, INFORMS, vol. 33(6), pages 756-762, June.
    7. Kunreuther, Howard & Richard, Jean Francois, 1971. "Optimal Pricing and Inventory Decisions for Non-Seasonal Items," Econometrica, Econometric Society, vol. 39(1), pages 173-175, January.
    8. Joseph Geunes & H. Edwin Romeijn & Kevin Taaffe, 2006. "Requirements Planning with Pricing and Order Selection Flexibility," Operations Research, INFORMS, vol. 54(2), pages 394-401, April.
    9. Harvey M. Wagner & Thomson M. Whitin, 1958. "Dynamic Version of the Economic Lot Size Model," Management Science, INFORMS, vol. 5(1), pages 89-96, October.
    10. Patriksson, Michael, 2008. "A survey on the continuous nonlinear resource allocation problem," European Journal of Operational Research, Elsevier, vol. 185(1), pages 1-46, February.
    11. Geunes, Joseph & Merzifonluoglu, Yasemin & Romeijn, H. Edwin, 2009. "Capacitated procurement planning with price-sensitive demand and general concave-revenue functions," European Journal of Operational Research, Elsevier, vol. 194(2), pages 390-405, April.
    12. Stephen M. Gilbert, 2000. "Coordination of Pricing and Multiple-Period Production Across Multiple Constant Priced Goods," Management Science, INFORMS, vol. 46(12), pages 1602-1616, December.
    13. Evan L. Porteus, 1985. "Investing in Reduced Setups in the EOQ Model," Management Science, INFORMS, vol. 31(8), pages 998-1010, August.
    14. Howard Kunreuther & Linus Schrage, 1973. "Joint Pricing and Inventory Decisions for Constant Priced Items," Management Science, INFORMS, vol. 19(7), pages 732-738, March.
    15. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.
    16. van den Heuvel, Wilco & Wagelmans, Albert P.M., 2006. "A polynomial time algorithm for a deterministic joint pricing and inventory model," European Journal of Operational Research, Elsevier, vol. 170(2), pages 463-480, April.
    17. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
    18. Joseph Thomas, 1970. "Price-Production Decisions with Deterministic Demand," Management Science, INFORMS, vol. 16(11), pages 747-750, July.
    19. Netessine, Serguei, 2006. "Dynamic pricing of inventory/capacity with infrequent price changes," European Journal of Operational Research, Elsevier, vol. 174(1), pages 553-580, October.
    20. Lim, Sungmook, 2013. "A joint optimal pricing and order quantity model under parameter uncertainty and its practical implementation," Omega, Elsevier, vol. 41(6), pages 998-1007.
    21. Hyun-soo Ahn & Mehmet Gümüş & Philip Kaminsky, 2007. "Pricing and Manufacturing Decisions When Demand Is a Function of Prices in Multiple Periods," Operations Research, INFORMS, vol. 55(6), pages 1039-1057, December.
    22. Bhattacharjee, Sudip & Ramesh, R., 2000. "A multi-period profit maximizing model for retail supply chain management: An integration of demand and supply-side mechanisms," European Journal of Operational Research, Elsevier, vol. 122(3), pages 584-601, May.
    23. Kim, DaeSoo & Lee, Won J., 1998. "Optimal joint pricing and lot sizing with fixed and variable capacity," European Journal of Operational Research, Elsevier, vol. 109(1), pages 212-227, August.
    24. Qi Feng, 2010. "Integrating Dynamic Pricing and Replenishment Decisions Under Supply Capacity Uncertainty," Management Science, INFORMS, vol. 56(12), pages 2154-2172, December.
    25. Gilbert, Stephen M., 1999. "Coordination of pricing and multi-period production for constant priced goods," European Journal of Operational Research, Elsevier, vol. 114(2), pages 330-337, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hu, Xiangling & Su, Ping, 2018. "The newsvendor's joint procurement and pricing problem under price-sensitive stochastic demand and purchase price uncertainty," Omega, Elsevier, vol. 79(C), pages 81-90.
    2. Gongli Luo & Xiaoqing Liu & Felix T. S. Chan, 2023. "Optimal Ordering Decisions in Portfolio Procurement Considering Spot Price Fluctuation," Sustainability, MDPI, vol. 15(14), pages 1-13, July.
    3. Matthias Pelster & Andrea Schertler, 2019. "Pricing and issuance dependencies in structured financial product portfolios," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(3), pages 342-365, March.
    4. Pereira, Daniel Filipe & Oliveira, José Fernando & Carravilla, Maria Antónia, 2020. "Tactical sales and operations planning: A holistic framework and a literature review of decision-making models," International Journal of Production Economics, Elsevier, vol. 228(C).
    5. Oliveira, Beatriz Brito & Carravilla, Maria Antónia & Oliveira, José Fernando, 2018. "Integrating pricing and capacity decisions in car rental: A matheuristic approach," Operations Research Perspectives, Elsevier, vol. 5(C), pages 334-356.
    6. Li, Jianbin & Liu, Lang & Luo, Xiaomeng & Zhu, Stuart X., 2023. "Interactive bundle pricing strategy for online pharmacies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 177(C).
    7. Wu, Xiang & (Yale) Gong, Yeming & Xu, Haoxuan & Chu, Chengbin & Zhang, Jinlong, 2017. "Dynamic lot-sizing models with pricing for new products," European Journal of Operational Research, Elsevier, vol. 260(1), pages 81-92.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shiming Deng & Candace A. Yano, 2006. "Joint Production and Pricing Decisions with Setup Costs and Capacity Constraints," Management Science, INFORMS, vol. 52(5), pages 741-756, May.
    2. Zhi-Long Chen & Nicholas G. Hall, 2010. "The Coordination of Pricing and Scheduling Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 77-92, April.
    3. Lamas, Alejandro & Chevalier, Philippe, 2018. "Joint dynamic pricing and lot-sizing under competition," European Journal of Operational Research, Elsevier, vol. 266(3), pages 864-876.
    4. Brahimi, Nadjib & Absi, Nabil & Dauzère-Pérès, Stéphane & Nordli, Atle, 2017. "Single-item dynamic lot-sizing problems: An updated survey," European Journal of Operational Research, Elsevier, vol. 263(3), pages 838-863.
    5. Wu, Xiang & (Yale) Gong, Yeming & Xu, Haoxuan & Chu, Chengbin & Zhang, Jinlong, 2017. "Dynamic lot-sizing models with pricing for new products," European Journal of Operational Research, Elsevier, vol. 260(1), pages 81-92.
    6. W K Chiang & Y Feng, 2010. "Retailer or e-tailer? Strategic pricing and economic-lot-size decisions in a competitive supply chain with drop-shipping," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(11), pages 1645-1653, November.
    7. Hyun-soo Ahn & Mehmet Gümüş & Philip Kaminsky, 2007. "Pricing and Manufacturing Decisions When Demand Is a Function of Prices in Multiple Periods," Operations Research, INFORMS, vol. 55(6), pages 1039-1057, December.
    8. Transchel, Sandra & Minner, Stefan, 2009. "The impact of dynamic pricing on the economic order decision," European Journal of Operational Research, Elsevier, vol. 198(3), pages 773-789, November.
    9. Geunes, Joseph & Merzifonluoglu, Yasemin & Romeijn, H. Edwin, 2009. "Capacitated procurement planning with price-sensitive demand and general concave-revenue functions," European Journal of Operational Research, Elsevier, vol. 194(2), pages 390-405, April.
    10. van den Heuvel, W. & Kundakcioglu, O.E. & Geunes, J. & Romeijn, H.E. & Sharkey, T.C. & Wagelmans, A.P.M., 2007. "Integrated market selection and production planning: complexity and solution approaches," Econometric Institute Research Papers EI 2007-45, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    11. van den Heuvel, Wilco & Wagelmans, Albert P.M., 2006. "A polynomial time algorithm for a deterministic joint pricing and inventory model," European Journal of Operational Research, Elsevier, vol. 170(2), pages 463-480, April.
    12. Yasemin Merzifonluoğlu & Joseph Geunes & H.E. Romeijn, 2007. "Integrated capacity, demand, and production planning with subcontracting and overtime options," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(4), pages 433-447, June.
    13. Joseph Geunes & H. Edwin Romeijn & Kevin Taaffe, 2006. "Requirements Planning with Pricing and Order Selection Flexibility," Operations Research, INFORMS, vol. 54(2), pages 394-401, April.
    14. van den Heuvel, Wilco & Wagelmans, Albert P.M., 2017. "A note on “A multi-period profit maximizing model for retail supply chain management”," European Journal of Operational Research, Elsevier, vol. 260(2), pages 625-630.
    15. Li, Xueping & Wang, Jiao & Sawhney, Rapinder, 2012. "Reinforcement learning for joint pricing, lead-time and scheduling decisions in make-to-order systems," European Journal of Operational Research, Elsevier, vol. 221(1), pages 99-109.
    16. Lap Mui Ann Chan & David Simchi-Levi & Julie Swann, 2006. "Pricing, Production, and Inventory Policies for Manufacturing with Stochastic Demand and Discretionary Sales," Manufacturing & Service Operations Management, INFORMS, vol. 8(2), pages 149-168, January.
    17. Abhijit Upasani & Reha Uzsoy, 2008. "Incorporating manufacturing lead times in joint production-marketing models: A review and some future directions," Annals of Operations Research, Springer, vol. 161(1), pages 171-188, July.
    18. Awi Federgruen & Joern Meissner, 2009. "Competition under time‐varying demands and dynamic lot sizing costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(1), pages 57-73, February.
    19. Kim, DaeSoo & Lee, Won J., 1998. "Optimal joint pricing and lot sizing with fixed and variable capacity," European Journal of Operational Research, Elsevier, vol. 109(1), pages 212-227, August.
    20. Ehsan Ardjmand & Gary R. Weckman & William A. Young & Omid Sanei Bajgiran & Bizhan Aminipour, 2016. "A robust optimisation model for production planning and pricing under demand uncertainty," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 3885-3905, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:64:y:2016:i:c:p:86-101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.