Abstract

In this chapter, we extend the unitary inventory commitment policy discussed in Chap. 3 to a more general upgrade policy, which allows the seller to choose the delivery time of all backlogged long lead-time orders. We characterize the optimal inventory upgrade and replenishment policies. In our analysis, we resort to the technique of anti-multimodularity to derive the structural properties of the value function. We further calibrate the model parameters using the empirical data collected from Toyota China dealerships and calculate the optimal policies and several performance metrics accordingly. The numerical results show that the upgrade mechanism can improve both profit and inventory usage .

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