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Optimal order policy in response to announced price increase for deteriorating items with limited special order quantity

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  • Liang-Yuh Ouyang
  • Kun-Shan Wu
  • Chih-Te Yang
  • Hsiu-Feng Yen

Abstract

When a supplier announces an impending price increase due to take effect at a certain time in the future, it is important for each retailer to decide whether to purchase additional stock to take advantage of the present lower price. This study explores the possible effects of price increases on a retailer's replenishment policy when the special order quantity is limited and the rate of deterioration of the goods is assumed to be constant. The two situations discussed in this study are as follows: (1) when the special order time coincides with the retailer's replenishment time and (2) when the special order time occurs during the retailer's sales period. By analysing the total cost savings between special and regular orders during the depletion time of the special order quantity, the optimal order policy for each situation can be determined. We provide several numerical examples to illustrate the theories in practice. Additionally, we conduct a sensitivity analysis on the optimal solution with respect to the main parameters.

Suggested Citation

  • Liang-Yuh Ouyang & Kun-Shan Wu & Chih-Te Yang & Hsiu-Feng Yen, 2016. "Optimal order policy in response to announced price increase for deteriorating items with limited special order quantity," International Journal of Systems Science, Taylor & Francis Journals, vol. 47(3), pages 718-729, February.
    • Handle: RePEc:taf:tsysxx:v:47:y:2016:i:3:p:718-729
    DOI: 10.1080/00207721.2014.902157
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    Cited by:

    1. Tyrone T. Lin & Shu-Yen Hsu, 2018. "Risk Management for the Optimal Order Quantity by Risk-Averse Suppliers of Food Raw Materials," IJFS, MDPI, vol. 6(4), pages 1-17, December.

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