Investigating the impacts of dynamic pricing and price-sensitive demand on an inventory system in the presence of supply disruptions

Abstract

Supply disruptions have attracted a lot of attention due to the huge detriments they might cause. Supply disruptions have various forms, including machine breakdowns and natural disasters. As an effective marketing tool, dynamic pricing has been helping sellers enhance their profits. In addition, price-dependent demand is common in practice. This paper studies a single-product inventory system that consists of a supplier, a retailer, and customers. The supplier is subject to disruptions. The retailer adopts a periodic review inventory policy, under which an appropriate inventory replenishment order is sent to the supplier every a fixed period of time. Price is adjusted according to inventory level at each inventory review point. Customer demand variation based on price is also considered. In this paper, we simulate the concerned inventory system and investigate the impacts of supply disruptions, dynamic pricing, and price-sensitive demand on the retailer's annual profit.