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A stochastic inventory model for an immediate liquidation and price-promotion decision under price-dependent demand

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  • Xiaoyan Zhu
  • Sila Cetinkaya

Abstract

We consider a periodic review stochastic inventory system where the current on-hand inventory exceeds the maximum supply needs in the future. Consequently, one must make an immediate inventory liquidation decision on the liquidation quantity and promotional price with the goal of maximising the overall profit where the demand during the liquidation period (DDLP) is a random variable whose distribution depends on the promotional price. We develop a price-dependent DDLP model and an inventory model for optimising the liquidation quantity and unit promotional price. The model is applicable for general distributions of the DDLP and regular demand (i.e. demand during the future periods following the promotion period). We also investigate four special cases where the DDLP and regular demand are assumed to be either exponential or uniform random variables. The two models that assume the exponential distribution for regular demand can be examined analytically and simplified using the mathematical properties we derive. The additional two models that assume the uniform distribution for regular demand do not have closed-form expressions but can be solved numerically. Some numerical examples are presented for further elaboration of the models and to demonstrate their practical use.

Suggested Citation

  • Xiaoyan Zhu & Sila Cetinkaya, 2015. "A stochastic inventory model for an immediate liquidation and price-promotion decision under price-dependent demand," International Journal of Production Research, Taylor & Francis Journals, vol. 53(12), pages 3789-3809, June.
    • Handle: RePEc:taf:tprsxx:v:53:y:2015:i:12:p:3789-3809
    DOI: 10.1080/00207543.2014.990233
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    Cited by:

    1. Zhu, Xiaoyan & Jiao, Can & Yuan, Tao, 2019. "Optimal decisions on product reliability, sales and promotion under nonrenewable warranties," Reliability Engineering and System Safety, Elsevier, vol. 192(C).
    2. Gürel, Yücel & Güllü, Refik, 2019. "Effect of a secondary market on a system with random demand and uncertain costs," International Journal of Production Economics, Elsevier, vol. 209(C), pages 112-120.
    3. Pourya Pourhejazy, 2020. "Destruction Decisions for Managing Excess Inventory in E-Commerce Logistics," Sustainability, MDPI, vol. 12(20), pages 1-12, October.
    4. Sricharan Chirra & Dinesh Kumar, 2018. "Evaluation of Supply Chain Flexibility in Automobile Industry with Fuzzy DEMATEL Approach," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 19(4), pages 305-319, December.

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