Optimal quality level, order quantity and selling price for the retailer in a two-level supply chain

Abstract

For a classical order quantity/pricing problem, we present a geometric programming (GP) approach to find the optimal selling price, order quantity and quality level to maximize the profit for the retail firm. Traditional models such as EOQ are not able to handle the nonlinearity of costs and demand. We adopt the GP approach and make a proper transformation of the model so as to solve this classical problem and obtain the global optimal solution. In addition to the optimal solutions, we also perform a sensitivity analysis. The study shows once more that GP is an excellent approach when decision variables interact in a nonlinear, especially exponential manner.