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Optimal price markup policy for an inventory model with random price fluctuations and option for additional purchase

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  • Sharma, Ashish
  • Banerjee, Snigdha

Abstract

In this paper, based on the analysis of empirical data of dealer and retailer prices and sales of cement – as a prototype of functional products – we develop a probabilistic inventory model for the situation when dealer′s selling price fluctuates and affects the retailer′s selling price. Demand is a function of price markup and retailer′s purchase price. Dynamic price markup policy is proposed and optimal length of replenishment cycle and order quantity is obtained. Concavity of the profit function with respect to price markup is discussed. A procurement policy which considers opportunity of purchase at a low price before the end of the optimal replenishment cycle is proposed and compared with other policies. Algorithm, numerical examples, sensitivity analysis and managerial insights are presented.

Suggested Citation

  • Sharma, Ashish & Banerjee, Snigdha, 2013. "Optimal price markup policy for an inventory model with random price fluctuations and option for additional purchase," International Journal of Production Economics, Elsevier, vol. 146(2), pages 620-633.
    • Handle: RePEc:eee:proeco:v:146:y:2013:i:2:p:620-633
    DOI: 10.1016/j.ijpe.2013.08.011
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    1. Mou, Shandong & Robb, David J. & DeHoratius, Nicole, 2018. "Retail store operations: Literature review and research directions," European Journal of Operational Research, Elsevier, vol. 265(2), pages 399-422.
    2. Rezapour, Shabnam & Farahani, Reza Zanjirani & Pourakbar, Morteza, 2017. "Resilient supply chain network design under competition: A case study," European Journal of Operational Research, Elsevier, vol. 259(3), pages 1017-1035.

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