IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v138y2012i1p177-182.html
   My bibliography  Save this article

Evaluating lot-sizing strategies under limited-time price incentives: An efficient lower bound

Author

Listed:
  • Ramasesh, Ranga V.
  • Rachamadugu, Ram

Abstract

Determination of the optimal lot sizing strategy when the vendor offers limited time price incentives, such as pre-announcement of a price increase that will take effect after a finite time or a price discount that is valid for a limited time, is a common problem that has been extensively researched. A review of the literature indicates that the mathematical analysis and solution of this problem are quite complex. This complexity may deter managers from using the optimal strategy although an optimal lot sizing strategy results in the lowest cost. Managers generally prefer simple heuristic or rule-of-thumb strategies that are easy to understand and to implement, provided the total relevant cost associated with such strategies compares well with that of the optimal strategy. Therefore, it would be of significant value to managers if the cost associated with the optimal strategy can be deduced easily without recourse to complex mathematical analysis so that the simpler strategies can be quickly and easily evaluated. In this paper, we present an intuitively appealing and easy-to-compute method to determine a tight lower bound, whose value is very close to the total cost of the optimal strategy. We demonstrate, through extensive computational analysis, the adequacy of our lower bound by comparing it with the total cost associated with an optimal strategy over a wide range of operating parameters. Thus, managers can use it as a surrogate for the cost of the optimal strategy while evaluating heuristic strategies. We illustrate the application of our lower bound with numerical examples.

Suggested Citation

  • Ramasesh, Ranga V. & Rachamadugu, Ram, 2012. "Evaluating lot-sizing strategies under limited-time price incentives: An efficient lower bound," International Journal of Production Economics, Elsevier, vol. 138(1), pages 177-182.
  • Handle: RePEc:eee:proeco:v:138:y:2012:i:1:p:177-182
    DOI: 10.1016/j.ijpe.2012.03.021
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092552731200117X
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijpe.2012.03.021?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. Ram Rachamadugu, 1988. "Error bounds for EOQ," Naval Research Logistics (NRL), John Wiley & Sons, vol. 35(5), pages 419-425, October.
    2. Benjamin Lev & Howard J. Weiss, 1990. "Inventory Models with Cost Changes," Operations Research, INFORMS, vol. 38(1), pages 53-63, February.
    3. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    4. Robert W. Grubbström & Brian G. Kingsman, 2004. "Ordering and Inventory Policies for Step Changes in the Unit Item Cost: A Discounted Cash Flow Approach," Management Science, INFORMS, vol. 50(2), pages 253-267, February.
    5. Sam G. Taylor & Charles E. Bradley, 1985. "Optimal Ordering Strategies for Announced Price Increases," Operations Research, INFORMS, vol. 33(2), pages 312-325, 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. Yusen Xia, 2016. "Responding to supplier temporary price discounts in a supply chain through ordering and pricing decisions," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 1938-1950, April.

    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. Ramasesh, Ranga V., 2010. "Lot-sizing decisions under limited-time price incentives: A review," Omega, Elsevier, vol. 38(3-4), pages 118-135, June.
    2. Shaposhnik, Yaron & Herer, Yale T. & Naseraldin, Hussein, 2015. "Optimal ordering for a probabilistic one-time discount," European Journal of Operational Research, Elsevier, vol. 244(3), pages 803-814.
    3. Ram Rachamadugu & Ranga Ramasesh, 1994. "Suboptimality of equal lot sizes for finite‐horizon problems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 41(7), pages 1019-1027, December.
    4. Yusen Xia, 2016. "Responding to supplier temporary price discounts in a supply chain through ordering and pricing decisions," International Journal of Production Research, Taylor & Francis Journals, vol. 54(7), pages 1938-1950, April.
    5. Khouja, Moutaz & Park, Sungjune, 2003. "Optimal lot sizing under continuous price decrease," Omega, Elsevier, vol. 31(6), pages 539-545, December.
    6. Wei Huang & Vidyadhar G. Kulkarni & Jayashankar M. Swaminathan, 2003. "Optimal EOQ for Announced Price Increases in Infinite Horizon," Operations Research, INFORMS, vol. 51(2), pages 336-339, April.
    7. Su, Yiqiang & Geunes, Joseph, 2012. "Price promotions, operations cost, and profit in a two-stage supply chain," Omega, Elsevier, vol. 40(6), pages 891-905.
    8. Pinçe, Çerağ, 2021. "Forward Buying and Strategic Stockouts," European Journal of Operational Research, Elsevier, vol. 289(1), pages 118-131.
    9. Ben A. Chaouch, 2007. "Inventory control and periodic price discounting campaigns," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(1), pages 94-108, February.
    10. Gurnani, Haresh, 1996. "Optimal ordering policies in inventory systems with random demand and random deal offerings," European Journal of Operational Research, Elsevier, vol. 95(2), pages 299-312, December.
    11. Wang, Yunzeng, 2001. "The optimality of myopic stocking policies for systems with decreasing purchasing prices," European Journal of Operational Research, Elsevier, vol. 133(1), pages 153-159, August.
    12. Taleizadeh, Ata Allah & Pentico, David W., 2013. "An economic order quantity model with a known price increase and partial backordering," European Journal of Operational Research, Elsevier, vol. 228(3), pages 516-525.
    13. Mahdi Tajbakhsh, M. & Lee, Chi-Guhn & Zolfaghari, Saeed, 2011. "An inventory model with random discount offerings," Omega, Elsevier, vol. 39(6), pages 710-718, December.
    14. F. J. Arcelus & T. P. M. Pakkala & G. Srinivasan, 2018. "Inventory Replenishment for Profit Maximization over a Finite Horizon under One-time Cost Changes," Global Business Review, International Management Institute, vol. 19(3_suppl), pages 235-248, June.
    15. Joglekar, Prafulla & Lee, Patrick, 1998. "Comments on: A comparative analysis for determining optimal price and order quantity when a sale increases demand," European Journal of Operational Research, Elsevier, vol. 109(1), pages 228-241, August.
    16. Suresha Kharvi & T. P. M. Pakkala & G. Srinivasan, 2019. "Ordering policies under currency risk sharing agreements: a Markov chain approach," OPSEARCH, Springer;Operational Research Society of India, vol. 56(3), pages 945-964, September.
    17. Suresha Kharvi & T. P. M. Pakkala, 2021. "An optimal inventory policy when purchase price follows geometric Brownian motion process," OPSEARCH, Springer;Operational Research Society of India, vol. 58(4), pages 835-851, December.
    18. Tersine, Richard J., 1996. "Economic replenishment strategies for announced price increases," European Journal of Operational Research, Elsevier, vol. 92(2), pages 266-280, July.
    19. Ardalan, Alireza, 1995. "A comparative analysis of approaches for determining optimal price and order quantity when a sale increases demand," European Journal of Operational Research, Elsevier, vol. 84(2), pages 416-430, July.
    20. Robert W. Grubbström & Brian G. Kingsman, 2004. "Ordering and Inventory Policies for Step Changes in the Unit Item Cost: A Discounted Cash Flow Approach," Management Science, INFORMS, vol. 50(2), pages 253-267, February.

    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:proeco:v:138:y:2012:i:1:p:177-182. 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/locate/ijpe .

    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.