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Optimal pricing and inventory policies with reliable and random-yield suppliers: characterization and comparison

Author

Listed:
  • Xiuli Chao

    (University of Michigan)

  • Xiting Gong

    (The Chinese University of Hong Kong)

  • Shaohui Zheng

    (Hong Kong University of Science and Technology)

Abstract

In this paper, we study the joint pricing and inventory replenishment problem for a periodic-review inventory system with random demand and dual suppliers, one of the suppliers is reliable but more expensive, the other supplier is less expensive but is unreliable with random yield. We characterize the firm’s optimal policies that simultaneously determine the optimal ordering and pricing decisions in each period over a finite planning horizon, and investigate the impacts of supply source diversification and supplier reliability on the firm and on its customers. We show that having source diversification or higher reliability of suppliers not only increases the firm’s expected profit, but also results in a lower optimal selling price, thus they benefit both the firm and its customers.

Suggested Citation

  • Xiuli Chao & Xiting Gong & Shaohui Zheng, 2016. "Optimal pricing and inventory policies with reliable and random-yield suppliers: characterization and comparison," Annals of Operations Research, Springer, vol. 241(1), pages 35-51, June.
    • Handle: RePEc:spr:annopr:v:241:y:2016:i:1:d:10.1007_s10479-014-1547-0
    DOI: 10.1007/s10479-014-1547-0
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    References listed on IDEAS

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    Cited by:

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    2. Golmohammadi, Amirmohsen & Hassini, Elkafi, 2019. "Capacity, pricing and production under supply and demand uncertainties with an application in agriculture," European Journal of Operational Research, Elsevier, vol. 275(3), pages 1037-1049.
    3. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    4. Li, Mengmeng & Mizuno, Shinji, 2022. "Dynamic pricing and inventory management of a dual-channel supply chain under different power structures," European Journal of Operational Research, Elsevier, vol. 303(1), pages 273-285.
    5. Xiting Gong & Youhua (Frank) Chen & Quan Yuan, 2022. "Coordinating Inventory and Pricing Decisions Under Total Minimum Commitment Contracts," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 511-528, February.
    6. Magfura Pervin & Sankar Kumar Roy & Gerhard-Wilhelm Weber, 2018. "Analysis of inventory control model with shortage under time-dependent demand and time-varying holding cost including stochastic deterioration," Annals of Operations Research, Springer, vol. 260(1), pages 437-460, January.
    7. Amirmohsen Golmohammadi & Alireza Tajbakhsh & Mohamed Dia & Pawoumodom M. Takouda, 2022. "Effect of timing on reliability improvement and ordering decisions in a decentralized assembly system," Annals of Operations Research, Springer, vol. 312(1), pages 159-192, May.
    8. K. M. Kamna & Prerna Gautam & Chandra K. Jaggi, 0. "Sustainable inventory policy for an imperfect production system with energy usage and volume agility," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 0, pages 1-9.
    9. Rongfang Yan & Dejun Kou & Bin Lu, 2019. "Optimal Order Policies for Dual-Sourcing Supply Chains under Random Supply Disruption," Sustainability, MDPI, vol. 11(3), pages 1-14, January.
    10. K. M. Kamna & Prerna Gautam & Chandra K. Jaggi, 2021. "Sustainable inventory policy for an imperfect production system with energy usage and volume agility," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 12(1), pages 44-52, February.
    11. Jun Wang & Qian Zhang & Pengwen Hou, 2022. "Implications of credit default and yield uncertainty on supply chain’s equilibrium financial strategy," Annals of Operations Research, Springer, vol. 315(1), pages 507-533, August.
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    14. Gel, Esma S. & Salman, F. Sibel, 2022. "Dynamic ordering decisions with approximate learning of supply yield uncertainty," International Journal of Production Economics, Elsevier, vol. 243(C).
    15. Nan Yang & Renyu Zhang, 2022. "Comparative Statics Analysis of An Inventory Management Model with Dynamic Pricing, Market Environment Fluctuation, and Delayed Differentiation," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 341-357, January.

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